Seattles 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. Its 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 hes been raising into a unicorn in Seattle, where a majority of top tech companies operate in enterprise software or cloud computing.

Im really excited for Seattle as a startup ecosystem, Fajt said. I think youre seeing more and more large, compelling companies growing in Seattle. We are one of many, and were 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 thats growing all the time.

When GeekWire visited the companys office and tested Rec Room in 2017, the startup was focused on virtual reality. But less than half of its users are now using VR. Rec Room 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. The company plans to launch an Android app later this year.

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 wasnt an atypical year for us, said Fajt, who previously was at Microsoft as a producer and program manager on HoloLens. Weve basically had four years now of double digit or 100% growth.

Though many of its users are teens, Rec Rooms customization makes it suitable for functions beyond gaming. Its 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. (GeekWire 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, were 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 its 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 youre 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 Rooms launch of the Creator Compensation Program is aimed at paying out more than $1 million in bonuses to Rec Room users whove 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 Capitals Stephanie Zhan told the Wall Street Journal that Rec Room plans to eventually go public. Other backers include First Round, Acequia, Vulcan, Maveron, Anorak, Betaworks, The Venture Reality Fund, and angel investors.

Acquisition target? Id be lying if I said there werent 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 thats really going to last, really going to impact culture, really going to have a positive influence on peoples lives.

Employee count: We are hiring up a storm, Fajt said of Rec Room, which is No. 140 on the GeekWire 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 its 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 hes unsure what the future holds when it comes to where people work and how often, but hes 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 dont think we will mandate that they have to be there five days a week, but its available to them. If you want to get around a whiteboard and draw something up, hopefully thats a thing that we can provide.





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