Rec Room shutting down: Once valued at $3.5B, social gaming platform finds profits elusive

Rec Room, the Seattle-based social gaming company once valued at $3.5 billion, is shutting down its platform on June 1, leaving the future of the company and its employees unclear.

The company made the announcement Monday afternoon, saying it couldn’t find a path to profitability even after serving more than 150 million players over the past decade.

“Despite this popularity, we never quite figured out how to make Rec Room a sustainably profitable business,” the company said in its post announcing the news. “Our costs always ended up overwhelming the revenue we brought in.”

The post did not address the future of Rec Room Inc. as an entity or whether its intellectual property and technology would be sold. We’ve contacted Rec Room for more information.

An investor in Rec Room, speaking on condition of anonymity, said there is a transaction related to the decision that has yet to be publicly announced. PitchBook had flagged Rec Room as a likely acquisition target. The company had not raised new funding in more than four years.

The platform will go dark at noon Pacific on June 1. Starting immediately, Rec Room is blocking new account creation, new friend requests, and new subscriptions to its Rec Room Plus membership. Creators can no longer publish new monetized content. Token purchases end May 1, creator earnings stop May 18, and a final creator payout will be processed on June 1.

Rec Room users, posting in the community Discord server, expressed shock and surprise, with some holding out hope that the announcement was an early April Fool’s joke.

Alas, it appears not.

“We spent a long time trying to find a way to make the numbers work,” the post said. “But with the recent shift in the VR market, along with broader headwinds in gaming, the path to profitability has gotten tough enough that we’ve made the difficult decision to shut things down.”

The company said it was making the decision now “while we still have the ability to wind things down thoughtfully and do right by the people who built this with us.”

Rec Room was founded in 2016 by Nick Fajt, Cameron Brown and a handful of other co-founders under the name Against Gravity. The Seattle startup built a cross-platform social gaming app that lets players create and share games, virtual goods and experiences across phones, consoles, PCs and VR headsets.

The company attracted backing from Sequoia Capital, Index Ventures, Madrona Venture Group, Coatue Management and others, raising $294 million across six rounds. Its December 2021 Series F valued the company at $3.5 billion, making it one of Seattle’s most prominent unicorns.

Rec Room’s popularity surged during the pandemic as players flocked to virtual hangouts, and the company said it surpassed 100 million lifetime users. But growth in the broader gaming market slowed in the years that followed, and Rec Room’s ambitions outpaced its revenue.

Rec Room laid off 16% of its staff in March 2025 and then cut roughly half its remaining workforce five months later, eliminating 141 positions and shrinking from about 310 employees to just over 100 people at the time.

Fajt said back then that the company needed to become self-sustaining and could no longer count on raising more money, but noted that Rec Room had enough runway to operate into 2029.

“If we had just kept going, we would have run out of money in the next couple of years,” he wrote at the time. “And with no money left, we would have had to lay everyone off.”

The company bet heavily on a vision of letting anyone create games on any device. It rolled out AI features including Maker AI for game creation and an artificial intelligence companion called Roomie, though the per-user costs of AI exceeded subscription revenue.

As of last September, revenue from user-generated content was growing about 70% year over year, and creators earned more than $1 million in a single quarter for the first time.

However, as noted by Fajt in public posts, the margins on user generated content were thin: Rec Room keeps only about 30 cents of every dollar of sales of user-generated content, after paying platforms and creators, compared with 70 cents on sales of first-party content.