The Rec Room is closing: Once valued at $3.5B, the community playground is losing profits

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 could not find a way to make a profit even after serving more than 150 million players over the past decade.

“Despite this popularity, we never thought about how to make Rec Room a sustainable profitable business,” the company said in its post announcing the news. “Our expenses have always been more than our income.”

The post did not address the future of Rec Room Inc. as a business or whether its intellectual property and technology will be sold. Contact the Rec Room for more information.

The Rec Room investor, who did not want to be named, said there are transactions related to the decision that have yet to be made public. PitchBook has flagged Rec Room as a potential acquisition target. The company has not raised new funding in more than four years.

The platform will go dark at noon Pacific on June 1. From then on, Rec Room is blocking new account creations, new friend requests, and new subscriptions to its Rec Room Plus membership. Creators will no longer be able to publish new monetized content. Token purchase is only on May 1st, creator rewards will stop on May 18th, and the last creator payment will be processed on June 1st.

Rec Room users, posting on the public Discord server, expressed shock and surprise, with some hoping the announcement was an early April Fool’s joke.

Alas, it does not appear.

“We spent a long time trying to figure out how to make the numbers work,” the document said. “But with the recent changes in the VR market, and the broader boom in sports, the road to profitability has become so difficult that we have made the difficult decision to close things down.”

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

Rec Room was founded in 2016 by Nick Fajt, Cameron Brown and a number of other co-founders under the name Against Gravity. The Seattle startup has created a social networking gaming app that allows players to create and share games, virtual assets 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 in 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 grew during the pandemic as players flocked to the 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 outstripped their money.

The Rec Room laid off 16% of its workforce in March 2025 and cut nearly half of its remaining workforce five months later, cutting 141 positions and downsizing from about 310 employees to just over 100 people during that time.

Fajt said at that point the company needs to be self-sustaining and can no longer rely on raising additional capital, but noted that Rec Room has enough of a road to 2029.

“If we had just kept going, we would have run out of money in the next few years,” he wrote at the time. “And since there’s no more money, we’d have to throw everyone away.”

The company is betting big on the idea of ​​allowing anyone to make games on any device. It released AI features including Maker AI for game creation and an artificial intelligence companion called Roomie, although per-user costs for AI exceeded subscription revenue.

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

However, as Fajt noted in a public post, margins on user-generated content were slim: Rec Room only keeps about 30 cents of each dollar of user-generated content sales, after paying platforms and creators, compared to 70 cents on the original company’s content sales.