How Against Gravity raised a seed round for Rec Room

Executive overview

Against Gravity built and shipped Rec Room — a free, social VR platform — in 90 days on less than $1M of friends-and-family convertible notes, then raised a $4M seed round led by Sequoia. The team replaced the pitch deck with the product itself, using the app as both demo and investor filter. They set their own terms, went to market with a fixed valuation, and asked investors in or out.

Raising money buys time to keep doing what's working — not permission to change it.

From Microsoft HoloLens to Rec Room

• Nick Fajt and co-founders spent years building HoloLens demos and apps inside Microsoft
• When HoloLens pivoted toward enterprise, the team's skill set no longer fit
• Left to explore AR/VR social — emailed headset makers; Valve responded the same day
• Launched Rec Room 3–4 months after the HTC Vive's public release
• Company name (Against Gravity) kept separate from product name (Rec Room) — common in games, gives creative license and lets the product fail without sinking the company

The "ready, fire, aim" product philosophy

• Prioritise iteration speed above all else: ship as soon as it compiles, gather feedback, address it the same afternoon
• Rec Room went from blank slate to live product in 90 days
• Shipped for free — breaking from the norm where most VR content was paid — to maximise community growth and feedback loops
• Free pricing was modelled on Minecraft: earn complexity by interacting with the community, not by launching feature-complete
• Active Discord and Reddit managed directly; feedback turnaround kept as tight as possible
• Emergent use cases (virtual meetings, whiteboards, weddings) validated the social thesis without the team having predicted them

The convertible note and pre-seed phase

• Raised ~$1M on a convertible note from friends, family, and former Microsoft co-workers
• Checks were mostly $25K; raised in rolling fashion over ~6 months
• Got equipment, began development, launched the app, made key hires
• Convertible notes let new investors join on the same terms without a formal close
• As institutional interest grew, the note structure no longer suited larger funds — triggering the transition to a priced seed round

Using the product as the pitch

• Abandoned the slide deck after early institutional conversations went poorly
• Told investors: download the app, play it, then call us
• Built a fundraising room inside Rec Room — with a pull-down projector showing the deck — for investors who wanted the formal experience
• Pre-qualification effect: anyone who made it through the funnel already had a VR headset, understood the market, and had spent real time in the product
• Even non-investing investors gave useful product feedback after an hour in the app

Conversion rates and reading investor signals

• Typical VC funnel: associate/principal screen → single partner → full partnership Monday meeting
• Against Gravity cleared roughly half-to-a-third of first-stage screens, ~20% of partner meetings, but most partnership meetings went well
• Common rejection: VR or gaming categories seen as too risky
• Key lesson: "let's stay in touch" almost always means no — genuine interest moves fast, with follow-up calls before you've left the building

Fixing the terms before going to market

• Sequoia was among the first to signal serious interest and helped crystallise the terms
• Took those terms — $4M raise, fixed valuation — to every other investor: in or out
• Prescriptive approach is non-standard but removes ambiguity and surfaces conviction quickly
• Investors who pushed back on terms self-selected out; those who committed shared the long-term vision

Investor diligence at seed stage

• Sequoia process moved in under two weeks: one call, one in-person visit, offer shortly after
• Data shared: user analytics and cohort behaviour — but very limited given how early the product was
• Main evidence was the product itself: built fast, capital-efficient team, early signs of retention
• Board's role post-raise: hold the team accountable to the multi-year vision when day-to-day iteration pulls attention to the next two weeks

Deploying the capital

• Kept the operating model unchanged — biweekly meaningful feature updates to Rec Room
• Raise bought runway to work on long-horizon, non-revenue-generating problems: abuse prevention, moderation, user-generated content tools
• Without funding: would have defaulted to known monetisation (selling hats, paid content) rather than open-ended platform problems
• Target milestone for the round: reach the market inflection point when an untethered, 6DoF headset hits mass-market price (identified as ~2 years out; Oculus Santa Cruz cited as closest candidate)

Financial model and round sizing

• Built hiring-ramp financial projections to determine how far $4M could stretch toward the VR inflection point
• Chose to raise only what was needed to reach that milestone — not the maximum available
• Communicated a sober VR timeline to investors upfront: PDA phase, not iPhone moment yet; mainstream 10 years out
• "You get the investors you ask for" — honesty about timeline filtered for partners with matching patience

The VR market in 2018

• Estimated 4–5M high-end (6DoF) headsets in market; earlier projections had been far too optimistic
• PlayStation VR was the surprise market leader: cheapest, easiest out-of-box setup
• Key insight: ease-of-use and price beat immersion as adoption drivers at this stage
• Emergent market conditions are a gift for product development — low competition, low user expectations, free user acquisition, direct customer access