Seattle’s newest unicorn: Rec Room raises $100M as social gaming popularity fuels big growth

(Rec Room Image)

Seattle-based Rec Room has raised $100 million in new funding. The game development startup is now valued at $1.25 billion after an explosive year of growth in which players used the platform to connect during the COVID-19 pandemic. It’s the latest Seattle-area startup to reach “unicorn” status with a $1 billion valuation or more.

On a video call from the hospital where he and his wife welcomed a baby boy over the weekend, CEO and co-founder Nick Fajt was excited about the 5-year-old startup he’s been raising into a unicorn in Seattle, where a majority of top tech companies operate in enterprise software or cloud computing.

“I’m really excited for Seattle as a startup ecosystem,” Fajt said. “I think you’re seeing more and more large, compelling companies growing in Seattle. We are one of many, and we’re excited to add a consumer social company to that mix.”

How it works: Rec Room is a free download which lets players use a collection of tools to make virtual rooms, objects, and playable games, such as paintball and laser tag, with a vast amount of community-created content that’s growing all the time. It initially premiered in June 2016 on the Steam digital storefront, but has since grown to include several other platforms, including iOS, PlayStation 4, Xbox and Oculus.

Traction: Rec Room has attracted 15 million lifetime users and over 2 million people have created content on the platform. Year-over-year revenue growth of 566% was fueled in part by the pandemic and trends toward social gatherings online. The company is not yet profitable.

“We saw a lot of growth last year. And honestly that wasn’t an atypical year for us,” Fajt said. “We’ve basically had four years now of double digit or 100% growth.”

Though many of its users are teens, Rec Room’s customization makes it suitable for functions beyond gaming. It’s a go-to spot for all sorts of digital hangouts including classes, company meetings, weddings, family reunions, group therapy sessions, book clubs, etc.

Nick Fajt
Nick Fajt, CEO and co-founder of Rec Room. (Mekhato File Photo)

Gaming company or social company? When asked whether Rec Room is a game, a social app or a user-generated content platform, Fajt said the answer the company normally gives is … yes.

“It can be any of those things,” he said. “Those entities, which probably used to be distinct, we’re kind of seeing them merge together. I think in a lot of ways gaming is the new social.”

And Rec Room is capitalizing on users’ dissatisfaction with traditional social media, which Fajt says predates the pandemic and will probably stick after the pandemic.

“At the end of the day social media is not super social — it’s you in isolation, scrolling through a feed. And I think it creates this need for people to have real time social connection,” he said.

Another big player: “Roblox” is perhaps the best-known gaming hit that is built around user-generated content. The company, which just went public and is valued at around $45 billion, is an “incredible business” that has woken a lot of people up to the possibilities in the vertical, according to Fajt. But Rec Room likes the way its users can create in the app itself and switch from being a player to a creator, multiple times during a session.

“The way you’re building in Rec Room is a lot more like building in ‘Minecraft,’” Fajt said. “You can do that and you can publish it on all these different platforms without knowing how to code, without knowing how to use 3D modeling tools, without understanding how networking authority works.”

Rec Room’s launch of the Creator Compensation Program is aimed at paying out more than $1 million in bonuses to Rec Room users who’ve made particularly popular content for the game.

(Rec Room Image)

Investors: Rec Room has raised $149 million in total funding and the new round comes just a few months after the company raised $20 million in December. The new funding was led by existing investors Sequoia Capital and Index Ventures, with participation from existing investor Madrona Venture Group, based in Seattle. Sequoia Capital’s Stephanie Zhan told the Wall Street Journal that Rec Room plans to eventually go public.

Acquisition target? “I’d be lying if I said there weren’t conversations that happen every now and then,” Fajt said about whether his company has attracted interest from big tech or gaming companies. “Our focus is how can we build Rec Room into the biggest standalone enduring company … that’s really going to last, really going to impact culture, really going to have a positive influence on people’s lives.”

Employee count: “We are hiring up a storm,” Fajt said of Rec Room, which is No. 140 on the Mekhato 200, our ranked index of Pacific Northwest startups. With just more than 90 employees now, Fajt said the plan is to get to well over 150 by next year, and it’s a big part of where the new funding will go.

New office space: Shortly before employees scattered to work remotely at the start of the pandemic, Rec Room was settling into a new office in Elliott Bay Office Park, after years in the Belltown neighborhood. The building is also home to Zipwhip. Fajt said he’s unsure what the future holds when it comes to where people work and how often, but he’s open to hiring remote.

“We have folks all over the place, but I think we probably will maintain some sort of office presence because I think some people like that,” he said. “I don’t think we will mandate that they have to be there five days a week, but it’s available to them. If you want to get around a whiteboard and draw something up, hopefully that’s a thing that we can provide.”

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