Rec Room Cuts 16% Jobs Amid Gaming Slowdown

Seattle-based gaming startup Rec Room has laid off 16% of its workforce, as it adjusts to a tougher business environment and shifting industry trends.

In a memo shared with employees, CEO Nick Fajt described the decision as difficult but necessary for the company’s long-term stability. He pointed to slower growth in the gaming market, rising interest rates, and a more challenging fundraising climate as key reasons behind the move.

“This wasn’t an easy decision,” Fajt wrote, adding that the company now needs to focus on becoming financially self-sustaining rather than relying on future funding rounds.

Rec Room currently employs around 372 people, according to LinkedIn, meaning the layoffs will impact a significant portion of its team.

Founded in 2016, Rec Room gained massive popularity during the COVID-19 pandemic in 2020. Its social gaming app — which allows users to create, share, and play games and virtual experiences — became a go-to platform for people looking to connect while stuck at home.

The company’s growth story also attracted major investor interest. In December 2021, Rec Room raised $145 million at a $3.5 billion valuation, earning it “unicorn” status within Seattle’s startup ecosystem.

However, the landscape has changed significantly since then. The gaming industry has seen slower expansion, and investors have become more cautious — especially in sectors like gaming where development cycles can stretch over five years for large-scale titles.

Fajt noted that when Rec Room last raised funds, the company planned for more than five years of runway due to economic uncertainty. Now, three years later, that uncertainty still remains. As a result, the company is shifting its strategy toward operating within its existing resources.

Looking ahead, Rec Room plans to streamline its structure and return to a more startup-like approach. This includes reducing hybrid roles, flattening the organizational hierarchy, and improving internal efficiency. The company also aims to rely more on building its own tools to optimize workflows.

A major focus for the future is “Rooms 2.0,” the next version of its platform. Fajt described it as the biggest investment Rec Room has made so far, signaling its importance in the company’s long-term roadmap.

Despite the layoffs, Rec Room is betting that a leaner structure and sharper focus will help it navigate current challenges and position itself for sustainable growth in the evolving gaming market.

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