Raising a Seed Round with Against Gravity CEO Nick Fajt

We launch mini-series on Acquired with a subject near & dear to our heroes’ hearts: startup fundraising! This has been one of our most-requested new topics, and we’re excited to kick things off with makers of the popular Rec Room http://store.steampowered.com/app/471710/Rec_Room/ social VR app, Against Gravity https://www.againstgrav.com, which raised one of Seattle’s hottest venture rounds in recent history: a $4m seed led by Sequoia Capital in 2016. CEO Nick Fajt joins to tell the story from company inception to building and shipping the initial product, fundraising as a first-time CEO, what they’ve been able to accomplish with the capital and their vision for the future. We had a blast touching on many classic Acquired themes for the first time “in-action” with a young, growing company, and hope you all enjoy the discussion as much as we did. Let us know what you think in the Slack! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Carve Outs: Ben: Ready Player One https://www.amazon.com/Ready-Player-One-Ernest-Cline-ebook/dp/B004J4WKUQDavid: Seveneves https://www.amazon.com/Seveneves-Novel-Neal-Stephenson-ebook/dp/B00LZWV8JO/ Nick: The Legend of Zelda: Breath of the Wild https://www.zelda.com/breath-of-the-wild/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  All right. I feel naked without my headphones.

• 0:02Speaker 01

  Do you want to wear headphones?

• 0:03David Rosenthal?

  I should, yeah.

• 0:08Speaker 01

  Ben's got some earmuffs for you to put on.

• 0:22Ben Gilbert?

  Welcome to season two, episode two of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. As we mentioned in December, we're moving to a seasons format where we can do multi-episode themes and mini-series across episodes. This season's mini-series is on startup fundraising. So to date, we've exclusively talked about exits on the show and we've glossed over plenty of fundraising events as part of these stories, but we've never really dug in. How do these rounds come together? What's the process? And what do different types of fundraising rounds allow a company to do? So our first episode is about the series seed of one of the most prominent VR companies in the market, Against Gravity, the makers of Rec Room.

• 1:07Ben Gilbert?

  And we are super, super fortunate to have with us today the co-founder and CEO of Against Gravity, Nick Feit. Nick is the co-founder and CEO of Against Gravity, as I mentioned. They're the makers of Rec Room, which is the VR social club where you can play active games with people from around the world. Rec Room is available on the HTC Vive, the Oculus Rift, and the PlayStation VR. And before that, Nick was a principal program manager at Microsoft, working on Hololens and Forza Motorsport.

• 1:35David Rosenthal?

  We're excited to have Nick with us. Longtime fans and listeners of the show might recognize Rec Room from our Oculus episode. And we are excited to

• 1:45Speaker 01

  Yeah, thanks for the shout out there.

• 1:45David Rosenthal?

  dig in further here. That was back when, well, you weren't, you weren't raising your round during that time, but it was shortly thereafter.

• 1:52Speaker 01

  Yeah, I think it was shortly.

• 1:53David Rosenthal?

  Yeah, this is almost like, you know, almost like a follow-up here. This is great.

• 1:58Ben Gilbert?

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• 2:17David Rosenthal?

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• 2:38Ben Gilbert?

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• 3:00David Rosenthal?

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• 3:18Ben Gilbert?

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• 3:48David Rosenthal?

  As always, Ben.

• 3:49Ben Gilbert?

  All right. So the history and facts. Normally, we narrate a lot of this section and tell the company history for people. But Nick, since we've got you here, would love to just hear, what is Against Gravity and what do you guys do?

• 4:02Speaker 01

  Sure. So Against Gravity makes Rec Room, which is a virtual reality social club where people from around the world can meet up in thousands of different rooms. And each room is a different experience. There are rooms for sports games, shooters, adventures to go on with your friends, clubhouses, escape rooms, comedy clubs. And some of these rooms are made by us, but increasingly, more and more are made by the community themselves.

• 4:31Ben Gilbert?

  Cool. And it's my understanding Rec Room's pretty popular among people with VR rigs, right?

• 4:36Speaker 01

  Rec Room is a pretty popular VR app across Steam, which is for the Vive, Oculus, and then PlayStation.

• 4:44David Rosenthal?

  It is super fun. I'm actually excited. One of the saddest parts about moving to San Francisco for me is, in our new office, we do not have a VR setup. And our apartment is too small, being in San Francisco, to have a VR setup. So I have missed all the awesome things that you guys ship, seemingly on a weekly basis. But listeners, I know we've talked about it before. If you haven't tried out Rec Room, go out there and...

• 5:09Speaker 01

  It's very free. It's priced to own.

• 5:12David Rosenthal?

  It is venture capital subsidized, as we're going to talk about now. It's great. It's super fun.

• 5:18Ben Gilbert?

  Well, David, that's a great transition. So Nick, we're covering your seed round on this episode. Catch us up. How has Against Gravity been capitalized to date?

• 5:28Speaker 01

  So, early on, we did a convertible note with friends and family, and actually, quite a few former coworkers as well. We were really fortunate in that a lot of people wanted to participate and get in on that. And we were able to raise almost a million dollars on that convertible note. And that got us quite a good way, is we were able to get set up with equipment, get our development going. And we were actually able to launch the app and support it for a couple of months after launch as well. We were also able to make some key hires. That really got us out into the public and got us some customers. Shortly after that, Rec Room was doing pretty well in the market and there was definitely a group of people that were really passionate about it.

• 6:09Speaker 01

  And so we started chatting with institutional investors, looking to do a longer round to really extend runway and get to a point in time where the VR market was significantly larger. And we had a lot of people participate in that. We had several from Seattle, so we had Vulcan, Mavron and Asequia. And we had several from outside Seattle. We had First Round, Beta Works, Anorak, the VR Fund. And then in that round as well, Sequoia ended up coming in a pretty big way and actually joining our board.

• 6:39David Rosenthal?

  Well, force you to go even farther back and talk about leaving Microsoft and starting the company, but I remember when you had raised that initial million dollars and then you built and shipped the product, like you guys made so much progress on so little money. You got the product shipped, and this was in the relatively early days of VR, where it wasn't like totally obvious how to build this stuff. I've always been curious, how did you make so much progress with so little resources in just a few months when you started the company?

• 7:07Speaker 01

  I have amazing co-founders. So while I was out trying to collect checks from friends and family, my coworkers did just amazing work. They were able to pull together from a blank white slate of paper to there's an app that's shipped that a good portion of the VR audience was playing. They managed to do that in 90 days. So it went from blank slate to product in market in 90 days. One of the phrases that we use a lot at that company is ready, fire, aim, which really describes our development process.

• 7:46David Rosenthal?

  A lot of people would view that as not a good thing, but...

• 7:50Speaker 01

  We really embrace it. I think it encapsulates our thought that...

• 7:56Speaker 01

  You know, it's really hard to aim and hit perfection. And it's really hard to hit perfection on the first try. So what we look for is can we just make tiny improvements through each iteration? And really, our focus is on how can we get the iteration speed up? So from the beginning, what we were really looking for was, you know, as soon as this thing compiles, can we push it out to the public? And then can we get feedback on it? Can we get a sense of what people like and what they don't like? And can we address that this afternoon? That was really the way that we approached it. And that's the way we've been developing Rec Room for almost the past two years now.

• 8:33Ben Gilbert?

  It's so funny about something specific to Rec Room for user feedback. You were taking me through the new features on Saturday, and people kept coming up to us. And Nick, you don't have any special thing above your head or anything indicating like, I'm the founder. But, you know, people are just coming up to us and telling us things and asking us questions, saying, oh, can I join your party? Or like, how do you do this? And a lot of people, like, just very vocal and very communicative. So I have to imagine from the earliest days, like, you didn't have to work very hard to get user feedback.

• 9:03Speaker 01

  No, but the community has been wonderful in telling us, you know, what they want, both in Rec Room and outside of Rec Room. We have a very active Discord that we manage. We have a very active Reddit that we manage. And generally, what we're trying to do is, when people give us feedback, we're trying to react to it in the tightest timeline possible. So when they ask us for something and we think, like, this could meaningfully change the experience, we try to get it in there as quick as possible and let those users know, like, hey, thank you for the feedback. Thank you for the ideas. You know, your idea is in there now. Like, go check it out. Yeah, let us know the next thing we should fix.

• 9:38David Rosenthal?

  You and all your co-founders, we're all at Microsoft together, right? How did the team come together? And how long were you thinking about it before you left? What catalyzed you guys to make the jump?

• 9:48Speaker 01

  So my background at Microsoft, I came to Microsoft right out of college and I spent a couple of years working on a series called Forza Motorsport there, which is a racing game for the Xbox. That was a really awesome experience. I got to see what AAA game development looks like. And then after a couple of those games, I moved to a small incubation team in 2012. And that incubation team ended up growing into the HoloLens team. And that was where I met most of my co-founders. So we had worked at Microsoft on HoloLens for several years. And really what we were doing was building demos for early prototypes of HoloLens.

• 10:28Speaker 01

  And then we were also working on some of the apps that shipped with the development kit of HoloLens.

• 10:35David Rosenthal?

  And for listeners who don't know, which I imagine is not many of you, but for those who don't, HoloLens is Microsoft's augmented reality headset.

• 10:44Speaker 01

  Yeah, that's correct.

• 10:45Ben Gilbert?

  So when you joined in 2012, I mean, years before it shipped, what did it look like then? Because it's a pretty sleek sort of self-contained device now.

• 10:54Speaker 01

  It looked like the Doc Brown helmet from Back to the Future. Like it was...

• 11:00David Rosenthal?

  Complete with Zalorian.

• 11:01Ben Gilbert?

  Did you have to push a computer around in a shopping cart?

• 11:03Speaker 01

  Yeah, so there was like this crazy thing that kind of looked like a bear trap that you would wear on your head. And then there were cables coming off the back that went to a cart that someone would like literally chirp around behind you that had a bunch of computers on it. I think that was the first time that I saw HoloLens demo. That was my experience. But I mean, it was unlike anything I had ever seen. And honestly, that was an amazing job, you know, building video games for a futuristic holographic computer for four years. That's a dream job. It was a great experience. So we spent time working on that. And shortly after the development kit shipped for HoloLens, it was clear that at least

• 11:45Speaker 01

  in the near term, HoloLens was going to focus a little bit more on the enterprise application space. There were some really great use cases there, but you know, we weren't really looking for HoloLens in the game space as much. So it was clear... Like, you know, my skill set just wasn't really needed in that space anymore. And so I started looking around for what was next. And actually, several people who had been in Microsoft and kind of in the game space, I think, ended up doing the same thing. There are a couple of other startups that were formed from, you know, ex-Hololens folks. So after some time, you know, I was really excited about the AR and VR space. But as far as like vision for what was next, I don't think I contributed much beyond, you know, there's a tsunami out on the horizon. We should probably learn to surf.

• 12:30Speaker 01

  Like, it was really my co-founders that came up with a lot of where we've moved now.

• 12:39David Rosenthal?

  Specifically with Rec Room and, you know, kind of, kind of starting out with that Wii Sports of VR.

• 12:48Ben Gilbert?

  Oh, yeah, this is an interesting nuance here. So Nick, we've chatted about this. Against Gravity is a very opinionated company and you've thought a lot about a lot of things and you do things differently than a lot of other companies. And one big one is you have one product, but your company's name is in no way the same as your product. What was your philosophy behind that?

• 13:09Speaker 01

  It's actually more common in the game space. I think one of the nice things about it is when you have a different product name than your company name, it gives you a little bit more creative license to play around with what that product is. That product can fail and you don't fail. Your company doesn't fail. And so what we wanted to do was we wanted to start from, from scratch. And we had this idea about how development should work. And that's really like Against Gravity. It's that ready, fire, aim approach. It's that learn by doing approach. But we wanted to develop a unique identity that was, that, that we could experiment with a little bit more. And that was Rec Room. And that was kind of the Wii Sports of VR.

• 13:54David Rosenthal?

  And was the intention when you started always that Rec Room was going to be, you know, go into the thing? Or had you thought about this was where you're going to start and we might go in other directions too?

• 14:04Speaker 01

  Oh, no, we, we started and we weren't sure if we were going to do AR or VR. Or you know, something else entirely. We were really excited about the possibility of of social. We felt like we had been living in the future for a couple of years, playing around with HoloLens. And it was just so clear to us that there was, there was something really transformative in the way that you could use these, these technologies to communicate with other people. It was really going to change the way those communications were going to work. Largely how we started in VR was we contacted pretty much everybody who made a headset. And we were like, hey, you know, we're, we're a company like you should send us a headset like we don't really know what we're going to build, but

• 14:43Speaker 01

  and, and Valve, uh, who, who, you know, makes Steam, they, they got back to us that day and got us a headset.

• 14:50David Rosenthal?

  Yeah.

• 14:51Speaker 01

  That was how we.

• 14:51David Rosenthal?

  And you guys launched Rec Room right around the same time that, that the, um, that the Vive launched publicly, right?

• 14:59Speaker 01

  We launched maybe like three or four months after.

• 15:03David Rosenthal?

  Okay.

• 15:03Speaker 01

  I think, I think I was still at Microsoft when it, when it launched and shortly after the, the HoloLens, uh, dev kit launched. We left and then we're, we're looking around for stuff to do.

• 15:14Ben Gilbert?

  And something that strikes me, I actually have a hard time describing Rec Room to people sometimes. And I think, I, so I just finished reading Ready Player One and I, it's the best way that I can kind of describe it as like, you know, like the whole con, the whole book of Ready Player One, like it is a world with many other worlds and you can kind of move around between them and it's, you kind of have to experience it because it's not like, oh, this is an app that exists in VR that is single purpose. It's like, here's a universe that's been created, some, some of it by the company, some of it by a bunch of other people. And you can do a bunch of different things in a bunch of these different worlds. When did that start to be the case instead of we are a single purpose thing?

• 15:53Speaker 01

  We were really excited about social and we, we saw this enormous opportunity in front of us for what could be done in social and what could be done in so many different segments. I had been pretty, you know, wisely warned by a couple of people that, that it's far more common for startups to die of indigestion from too much opportunity than starvation of, of too little. And, and so it was really. My co-founders that I think started along this path of Wii Sports for VR, because it was a really great place to start for social. Casual games are a really easy thing to pick up and play. They're a great way to break the ice between strangers, which is pretty important in VR. Like, the social density is lower,

• 16:38Speaker 01

  so you're not as likely to find one of your, you know, top five friends in Rec Room right now. So a lot of times you're playing with strangers from elsewhere, and so you need some common ground to kind of form there. And then it was also a very modular format. It was easy to like, drop new things in, pull them out, change them. We always had this idea that we wanted the content in Rec Room to be more than just the content that we authored. But we knew that we could build a great base with kind of this concept of Wii Sports and go from there. I think with a lot of ideas, they are both familiar and differentiated. And Wii Sports of VR was definitely that. Like, you have a strong sense of what that is when you hear it.

• 17:21Speaker 01

  And then when you go and play it, because of the controls in VR and the immersion of VR, it felt really different. It felt very differentiated.

• 17:29David Rosenthal?

  As Ben said, we could talk for hours about how cool Rec Room is, but really, you just take our word for it. You gotta go try it. But I want to get into the seed round, because the story here is really cool. So, and I think you guys did a couple of things, a couple really key things differently than a lot of startups do them. One, you guys were very, almost prescriptive in the amount that you wanted to raise and the terms you wanted to raise it on, which is not the normal advice that people get. You know, if you Google or talk to folks about how to go raise your seed round, it's like, "Well, I think we need about this much money, but you're the VCs, you know, you tell us how much we need." That wasn't the approach you guys took. How did you think about it?

• 18:08Speaker 01

  So, I think that Ready, Fire, or Aim approach also applied to our fundraising process. And so... You know, I think a lot of what we were doing was was learning by doing. While we were raising on our convertible note, we were out chatting with with a lot of institutional investors. And, you know, honestly, like, a lot of those early conversations, you know, didn't go well. And we we learned, like, we got better and better at at making progress, talking about what it was we wanted to do. And and we started getting more interest. So we had we had been raising on this convertible note for a while, and we started getting interest from larger funds. And the convertible note just wasn't really working for them.

• 18:53Speaker 01

  Like, it wasn't it wasn't set up to to accept some of these.

• 18:56David Rosenthal?

  And for listeners, a lot of listeners are probably familiar with this. But when you're in in super early-stage startups in seed rounds, you could raise traditional equity, which has happened to Rec Room. When you start getting to bigger rounds, you kind of need to do. But you can also raise smaller amounts with convertible notes, which is debt that converts into equity. And a nice feature of them is that you can continually add people to it on the same terms as others. You don't need to have a close of the round. So you guys kept going on the convertible note.

• 19:26Speaker 01

  Yeah, so we we were doing a convertible note. And, you know, as you said, we were doing it in kind of a rolling fashion. I mean, over six months, we were collecting, you know, one check at a time. But yeah, as we started moving into more institutional investors, we started needing to have some some different terms. So a sequia was one of the first people that that believed in us and really took it took a big dive. And that and that was who we figured out, like, hey, these are the terms. We're going to raise about this much, and we're going to we're going to go out with this about valuation. And that we basically took those numbers down to the valley. And we were like, this is what we're doing. Do you want in or do you want out?

• 20:09David Rosenthal?

  Which is so great, and it worked.

• 20:12Speaker 01

  Yeah, surprisingly.

• 20:12David Rosenthal?

  So you guys, you.

• 20:14Speaker 01

  There were comments. I mean, people were definitely like, this is weird.

• 20:17David Rosenthal?

  And so you you raised $4 million, right, in that round? And you had your valuation and what it was. And and you went down there and told everybody what it was going to be, right?

• 20:28Speaker 01

  Yeah.

• 20:29Ben Gilbert?

  Yeah. Nick, one question too for listeners. When you say one check at a time and you were going around and circling capital, what do those check sizes look like?

• 20:37Speaker 01

  At the friends and family stage, I mean, it was largely around 25K.

• 20:43Speaker 01

  There were some that were higher than that, but yeah, generally it was 25K.

• 20:47Ben Gilbert?

  That was that million dollar. I hesitate to call it a round, but million dollars of convertible notes?

• 20:53Speaker 01

  Yes, that's correct.

• 20:54David Rosenthal?

  Well, today would be your pre-seed round.

• 20:58David Rosenthal?

  So the other non-traditional thing that you did with your fundraising is you guys didn't have a deck. Well, you had a deck and then you trashed the deck, right?

• 21:06Speaker 01

  Well, so as I mentioned, we were talking with institutional investors early and those conversations weren't going great. And I think largely it was because we were much better at building products than we were at building PowerPoints.

• 21:21David Rosenthal?

  Imagine that. Investors fund PowerPoints, they should be funding products.

• 21:25Speaker 01

  And so after 90 days, there was a product in market and what we would do is just say, hey, we don't have a deck, don't come by the office, we're not giving you a demo, just go download the app. It's free and like, there's always people on there to play with you and like, let us know what you think. I would occasionally hop in. We had a room in the app that I actually had like a pull down projector that had my deck on it.

• 21:51David Rosenthal?

  A fundraising room in the app. That's awesome.

• 21:53Speaker 01

  Yeah. And so occasionally I would like go in there and show people that. It always got chuckles and I think it actually, it helped people move beyond like, oh, this is more than a game. Like there are, there are applications for this, you know, well beyond gaming. But, but it was a great filter for us for, you know, investment partners because it told us, like if they wanted to chat with us, like one, they had spent time in the app, they knew what was going on in there. They had VR headsets, they had probably played some other stuff as well. And so they had a better sense of the market. We weren't going in there and educating them on like, here are the VR headsets, like we're on this one. I think it just kind of upped the level of knowledge for the people we were talking to generally.

• 22:34David Rosenthal?

  Qualification is something that is so important. And I just think this was brilliant, like finding a way to like, you know, pre-qualify anyone you would talk to if you're just like, no, I'm not sending you a deck. You have to like, know the landscape, have access to a headset, be willing to try my app. If somebody makes it through that funnel, like, they're probably gonna be pretty interested.

• 22:54Speaker 01

  And oftentimes, they would, they would have really great suggestions for us. I mean, even if they weren't investing, you know, if they spend an hour in the app, they could, they could tell us like, hey, this thing was broken, or I didn't like this, or I didn't understand that. And, and that was, you know, that was helpful feedback early on. I would much rather get the feedback on my product than on my deck, so.

• 23:14Ben Gilbert?

  It's, it's worth pausing here for a minute just to like, Nick, I know we've said a lot of nice things about you on the show already, but like, 90 days and you guys had a product in market. I don't, I don't care how good it is. It was good enough for investors to go and experience, or people to go and experience. You had users, especially in VR where it involves 3D modeling and all this rendering stuff, and it's on a new technology stack where there's not a ton of familiar developers. I mean, that, it's, it's kind of mind blowing.

• 23:42Speaker 01

  I would, I would say it was all, our team was really cohesive and unified from the start, and they're very, very talented. I can take literally no credit for it because I was, during that period of time, I was out unsuccessfully showing our deck. So it was really, it was really, you know, my co-founders and our early hires that, that were hustling. It takes a lot of bravery to like, put out a product that, that doesn't look the way that you want and doesn't operate the way that you want, and only has 10% of the features that you want. But I, I think, you know, my co-founders were really brave in, in deciding like, hey, the right way to build this product roadmap is to get this out in front of people and see what they do with it.

• 24:24Ben Gilbert?

  It's, it's interesting from a philosophical perspective, because I'm, I'm a believer in that too, of get it out, get user feedback, iterate quickly on that, ship often. And I think that's, that's the mantra, and that's the drum people beat these days. I think that's a lot easier in emerging markets where you don't have user expectations set, and where users are preconditioned to not be hard.

• 24:45Speaker 01

  Oh, absolutely.

• 24:45Ben Gilbert?

  I think there's, you guys were pretty fortunate there to be in a situation like that where, you know, there's many other industries where if you were to launch a mobile productivity tool or like a Strava competitor or something like that, where it's the feature set is well understood. It's, it's like, there's so many things that are table stakes that you would just get laughed off the face of the earth before you could even, you know, really show what your product vision was.

• 25:11David Rosenthal?

  I mean, we always talk about tech themes before we're ready on this show, but this is a really good one, right? Like, it's almost, it's kind of like if there's not yet a product in market that has product market fit, like Strava or, you know, whatever, in whatever category, you can get away with it. But once there is, you can no longer get away with it.

• 25:29Speaker 01

  I think one of the, the nice things about being in an emergent market, or even being in the, the trou of disillusionment, is like, it really is a gift for product development, because user acquisition is free, competition is functionally, you know, quite low, quality expectations are very, very low. And so it really, you can build a product in a much more iterative fashion. And honestly, the market is a little bit more efficient, I would say. Like, if no one's playing your VR app right now, it's, it's probably not very good. If no one's playing your mobile game right now, like, there could be a whole host of problems. It could be because you were, you know, not

• 26:13Speaker 01

  spending the proper amount on marketing, or you were marketing to the wrong group, or you had the wrong color on your icons tile, or maybe it's because the app store gods like didn't smile on you that day. You know, it's such a noisy market, and in many ways, it's, it's very, there are a lot of irrational actors in it, and that, and that can be, that can distort the market in a way that, that can give you bad signal about your product.

• 26:37Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 26:51David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 27:05Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 27:15David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 27:32Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 27:48David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 28:05Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 28:14David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So back to the fundraising. You had investors that were willing to meet you in Rec Room, so you'd qualified them. After that, you do your first meeting with them. You have your first conversation. They try the products. What was the cadence of interactions after that?

• 28:41Speaker 01

  It really ranged. It could be months. It could be, it could be hours. I think if people were really interested, it was fast. It was like, I would get another call as I was Ubering away from, you know, their, their headquarters or something. And then there were a lot of other ones where it was like, all right, hey, well, you know, we'll stay in touch. I, I think one of the things that I learned and I, I, I try and pass this advice on is let's keep in touch is probably no. Anything other than yes is probably no. A hard no is pretty rare actually in the investment space. People kind of want to keep their options open and maybe that entrepreneur will

• 29:19Speaker 01

  surprise you in, in a couple of months. But yeah, I think it's easy to, to hear those things and think like, oh, I'm on the right path with 20 firms, right?

• 29:27David Rosenthal?

  Yeah.

• 29:27Speaker 01

  And realistically, you're, you're not. It was clear to us like who was interested because they, they would really hustle to get us to the next stage and the next meeting very quickly.

• 29:36David Rosenthal?

  And what was like the, you know, even for you guys, a very successful seed round, what was the conversion rate through that funnel from like, do that first in, you know, first solid, good interaction or, you know, high fidelity interaction to yes, I'm actually interested versus the, yeah, let's stay in touch.

• 29:56Speaker 01

  So there were, there were generally like three stages. So the first was they had, most firms had someone who was kind of qualifying, was doing the kind of first check on you. Like oftentimes that would be like a principal or an associate or something like that. If you get through that one, then generally you're chatting with, with one partner. And then if you get through that, then you're chatting with like the full partnership. There's the, the, the Monday meeting that you're, you're, you're going to. I, I would say our, our clearance rate was, you know, we were getting through maybe half to a third of the principals, associates, then maybe like 20% of the partners. And then by the time we got to the partnership meeting, generally those, those went well.

• 30:41David Rosenthal?

  But I mean, That's a huge drop off.

• 30:43Speaker 01

  It was, it was pretty, there was a bunch of people that were just like, VR, no. You're doing anything that sounds like games, no. Again, we got better at telling the story of what we wanted to do. We were kind of like, you know, really, we have aims beyond games, but we think this is a great place to start, and we think there's a lot to be learned here. But it was a little, it was a little too much for some people.

• 31:06Ben Gilbert?

  Mm hmm. There's a well-trodden path of, hey, here's our wedge, and then we're going to expand into this big vision. And by doing this wedge, it'll put us in a good strategic place to achieve this big vision. But there's definitely the potential to not connect those dots enough where you could say like, oh, we're going to do esports. Then we'll be everything in VR. Like, then we'll be this whole world where anybody can interact socially, doing anything. And it's like, you, you need to self-select into being a believer, I think, to, to help cross that chasm.

• 31:35Speaker 01

  I think also, while this was happening, like, the story was, one, being improved verbally, and then it was also being improved, like, by my co-founders, literally day over day. So, we would, we would meet in rec room, and then they would see more evidence that, you know, no, this is expanding over time. And actually, there's quite a few things that people, like, even in the early days, we were seeing people use it for virtual meetings. They would hop into one of the rooms and like, use, we had a whiteboard in one of the rooms, and people would like, use it for virtual whiteboarding sessions.

• 32:07David Rosenthal?

  Which is awesome, because it's public, right?

• 32:08Speaker 01

  Yeah.

• 32:09David Rosenthal?

  So people, this would be the equivalent of just like, walking into a Starbucks and having a, you know, business meeting.

• 32:14Speaker 01

  Yeah, yeah. I mean, in the early days, it was public. Now, you can have your own private rooms and private instances and everything. But in the early days, yeah, people were using it for all manner of things that we never, we never expected. People were giving talks in there, and like, it was, it was pretty wild, yeah.

• 32:29David Rosenthal?

  That's awesome. As you were interacting with people on the investor's side, like, what impressed you? How were you qualifying them, thinking about who you ultimately ended up wanting to work with?

• 32:40Speaker 01

  I would say the thing that was impressing me the most was, you know, we were like living and breathing VR. We were in there all the time. Occasionally, we would run into investors where they were just dropshipping in. They spent five to 10 minutes listening to my spiel, and then they would have something, they would have some new perspective that I had never thought of. They would be like, "Have you thought of this?" And it just, it would totally open up this, this new path that I had never considered from being, you know, six inches away from it. And it was those sort of insights that were really impressive, where they were, you know, they had spent so much time with so many other companies that they could, they could just see these fast lanes. And, and I think those were the

• 33:25Speaker 01

  things that impressed me the most.

• 33:26Ben Gilbert?

  Are there any of those that you implemented that you can think of?

• 33:29Speaker 01

  Some of the, the early ones from, from Sequoia were really focused around how, how can you help enable more of the creativity that you see in the community? We were seeing a lot of creativity early on, and they were pretty excited about like, "All right, well, how do you, how do you close the loop on this? Like, how do you get them creating? How do other people know what they've created? How are you ranking, discovering all of this stuff?" And, and I think it went from us thinking about it as like, "Oh, well, this is an emergent property of the app," to, "Oh, well, maybe this is..."

• 34:02Ben Gilbert?

  It's like the retweet.

• 34:04Speaker 01

  "The thing that we should be, we should be building around." Yeah.

• 34:06Ben Gilbert?

  Hmm.

• 34:07Speaker 01

  So I think that there were a lot of very influential discussions that we had, we had early on, and just about how to, how to approach these, these kind of things.

• 34:14Ben Gilbert?

  You know, you guys have been, you, you just launched the ability for people to create their own sort of large-scale objects and, and worlds. For a long time, you guys were the only people that could really have a, a large amount of, uh, sort of world creation for other people to interact within. I mean, how, how long of a journey has that been? And can you talk about like, today, a little bit, what does it look like for users to be able to have their own creativity inside Rec Room?

• 34:41Speaker 01

  Yeah, so we started by building out a series of our own rooms and each of those rooms has, you know, an environment and it has a series of objects with behaviors and logic in them. A couple of months ago, we started experimenting with what we called the Sandbox Machine, which means you could go to any room that we'd built and you could spawn any object out of the Sandbox Machine. So if you wanted to play tag with the bow and arrows on the disc golf course, like you could set that up. But it was all very temporal, like it didn't really last, didn't really stick around. So recently, we've allowed people to like name these rooms, save them, add logic and, you know, the ability for

• 35:23Speaker 01

  these objects to respawn in certain spots, set room limits, set who can edit things. And we've also really beefed up something we call the Maker Pen and that's basically a creation tool that lets you draw any object that we don't already have. So if you need a snowman, you can draw a snowman. If you want to draw a car, you can draw a car. If you want to draw a giant castle, you can do that, like all with the Maker Pen. And so the combination of those tools really unlocked a lot of creativity and that's currently what we're looking at now. It's like, how do we, how do we keep enabling people to do more of what they want to do?

• 36:01David Rosenthal?

  So as you're getting towards the end of the process, you've met lots of folks and people are coming in and then you meet Sequoia towards the end and they get excited. They call you back right away instead of the, a week later. How did the process wrap up with them and what were the key milestones to that?

• 36:19Speaker 01

  I met them towards the end of my process and actually, when I was talking to other people about Sequoia, I just, you know, everyone just had these, you know, amazingly positive things to say. They have a tremendous reputation and so I was, you know, kind of nervous and intimidated to go in there and talk. And they were amazing. They were so friendly and humble and engaged and really knowledgeable about the product and the space. And so after those meetings, it was, I was, I was sold. I really wanted to work with them. And so as soon as we, you know, we heard back, it was like, alright, great. This is, yeah, this is happening. Let's do this.

• 37:03David Rosenthal?

  How long did it take from your kind of first interactions with them to? Being finished or to them saying they wanted to work with you guys?

• 37:10Speaker 01

  It was pretty fast. I think we, I think we did maybe two weeks at the most, maybe less. I think we did, we did one call and then I flew down there and then I flew back to Seattle. And I think like very shortly after getting off the plane, I like left my bag in the car and then flew back for the next meeting.

• 37:34David Rosenthal?

  Did you actually leave your bag in the car?

• 37:36Speaker 01

  Yeah, yeah. I think it was like literally the next day back for, for another one.

• 37:41Ben Gilbert?

  And in that, like in raising around like this, what does diligence look like? Like what did in those two weeks, you know, what company information did Sequoia need from you? You, maybe you personally, what kind of research was done?

• 37:55Speaker 01

  I, I think we were generally very open with, with them. They, they, they wanted some data around, you know, analytics. Like what do, what do user behaviors look like here? What do, you know, your cohorts look like? We were providing that kind of data, but I mean, honestly, there was very little data to, to go on for them. You know, the product had not been out in the market for a very long period of time. And the company itself was very, very young. I think most of the evidence was like in the product already. It was just like, wow, this had been built pretty quickly. This team seems pretty scrappy.

• 38:29Speaker 01

  And we were, we were not spending very much money. So I think it was, it was clear that we, we had like some levels of capital efficiency going on.

• 38:36David Rosenthal?

  You go from being a scrappy startup, you launched a product in 90 days. It was clear was something was starting to work and now you have a lot more millions in your bank account. Did anything change in the company? Did it impact your philosophy about shipping quickly? You know, and, and how have you, how did you think about then deploying those resources?

• 38:55Speaker 01

  We tried to change as little as possible. We were like, look, this formula is working. So what this round has bought us is time. We can keep doing this formula for a longer period of time. Like in terms of what changed, it was very, very, very little.

• 39:10David Rosenthal?

  Were they on board with that? Like?

• 39:12Speaker 01

  Yeah, yeah. I think they, I mean, this was part of our pitch when we were going out and talking about what we were. We're doing, you know, most companies have the chart that's like up and to the right. And we were like, look, this is going to take a while. Like we're in the preseason of VR. We don't think the regular season is even starting for like another two years. Like here's what we want to do.

• 39:32David Rosenthal?

  Forget about the playoffs.

• 39:33Speaker 01

  Yeah. I mean, I, I think in a large, in a lot of ways, you'll get, you'll get the investors that you, you ask for. And if you're honest about what your, what your strategy is when you're fundraising, like people will self-select.

• 39:44David Rosenthal?

  I just want to highlight that. That is such a good point. Tom talked about that, Tom Alberg on the Amazon IPO, about how Jeff Bezos, that's one of his favorite sayings, you get the investors you ask for. And like, living it, you know, myself and Ben too, like it is so true. The best thing you can do for, you know, the long-term health of your business and relationship with your partners is say, ask for, you know, be clear about what you are and ask for what you want.

• 40:09Ben Gilbert?

  Yeah. I think a lot of people kind of freak out too about this notion of delayed gratification. That like, there's some dirty secret, like, uh, for example, VR headsets may not ship as many as we're all hoping and praying that will happen. You know, and this is thinking a few years ago, having a sober head about that and being like, yeah, like we, we think there's a chance of that. Like we, here's our plan if and when that happens. In fact, even if it does do gangbusters, we recognize the price points are really high. Right now it's connected to these big gigantic, you know, tethered computers that people basically need to have gaming rigs. Yeah. Like being super upfront and just recognizing, hey, you know, we're going to be incredibly well positioned when this, when the wave does hit. You know, I, I think that not only creates a great relationship between the investor and the entrepreneur,

• 40:54Ben Gilbert?

  but it also, it lets you sleep easy at night because you're, you know, you've made the right promise to the world and to yourself and to your team. That like, we're well equipped to handle this, but um, we're super realistic about the way that it's going to go.

• 41:09Speaker 01

  Yeah. I mean, keep, keep in mind, we, we had started working on HoloLens in 2012 and it took four years for, you know, us to get the dev kit out the door. So we like, we were very early. Um, and, and I think-

• 41:24David Rosenthal?

  When was, when was Oculus founded? 2012?

• 41:27Speaker 01

  Uh, no, I think afterwards. I had been working on Hololens for a while and then the Oculus Kickstarter happened.

• 41:32David Rosenthal?

  Wow.

• 41:33Speaker 01

  Like it.

• 41:33David Rosenthal?

  Wow.

• 41:34Speaker 01

  Yeah, it Hololens was in development for, for, you know, quite a long time. Um, cause it, it had been, been worked on, you know, before I, before I got there.

• 41:43David Rosenthal?

  It, what actually total sidebar here, we'll, we'll get back to the story, but it came out of a connect, right?

• 41:48Speaker 01

  Yeah, actually most of the people.

• 41:49Ben Gilbert?

  Alex Kipman's next thing, right?

• 41:51Speaker 01

  Yeah, the man's a genius. Like he, he's really a, Alex is really a one of a kind mind. That guy is. Yeah. Really, really, really smart. I think he just thinks about consumers like hardware in a, in a very different way than anyone else. So I'm anxious to see what, what, you know, what he's got cooking with Windows MR. Yeah.

• 42:12David Rosenthal?

  Yeah. Okay. So a, a big thing that changed when you raised the round is you had an official board now and Sequoia was on it. What was that like? Uh, going from all you guys, you were focused on raising money. The rest of your team was focused on building and shipping the product and iterating. But now you have a board and you're a real company and you have to manage investors. Um, how's that transition been?

• 42:36Speaker 01

  Uh, again, I think we, we were trying to keep as much of what was working, working. So for us, very little of the actual product development changed. We still try and get updates out to Rec Room, um, every, every, uh, two weeks. So we want meaningful updates that go out every two weeks that it's not just a bug fix update. It's like real features that, that users would notice and care about. Um, I would say what the board has, has provided is when you're in that really tight iteration loop, you can occasionally get caught up in the details and the board is there to remind you, like, are we making progress towards this long-term, multi-year vision that we've laid out?

• 43:19Speaker 01

  Are there any things that we are ignoring now and aren't investing in? I mean, I think when you raise money, largely what you're doing is you're, you're, you're getting permission to work on a higher value, longer-term problem. And I think the board is there to make sure that, that like progress is being made towards that.

• 43:40Ben Gilbert?

  That's such a good framing because you do, you just get so caught up in the minutia. You're thinking about like, what are we doing in the next two weeks? And what are we doing in the two weeks after that? And you know, the pitch deck or lack thereof that you made six months ago is just not at the forefront of your mind.

• 43:56Speaker 01

  Yeah, I think it's, it's a great formula for creating longer term goals and holding yourself accountable towards, towards those.

• 44:04David Rosenthal?

  I'm reminded, of course, again of, you know, Bezos and Amazon's whole thing that I really, the more I think about this, I think is a key part of their competitive advantage is that they're willing to invest over five to seven year timeframes. And work and iterate towards, you know, a project that might not bear economic returns for that period of time.

• 44:28David Rosenthal?

  And really that is a lot of about what raising money as a, as a startup, especially in a new market like you guys, you know, is about.

• 44:35Ben Gilbert?

  Oh yeah, for sure. You mentioned, you know, that you basically went with this, we want to raise $4 million at this valuation. How'd you guys come to four? Was it a thing you wanted to accomplish and it was going to take $4 million to get, get you there? Or a certain amount of time that you wanted to operate? How'd you figure it out?

• 44:50Speaker 01

  So we, we had built a bunch of financial projections that kind of showed, okay, with these different hiring ramps, here's about how much money we're spending. I think really what we were looking for was, we felt like there was going to be this inflection point in the market for VR. And we felt like it was going to come, um, once we saw a headset, uh, which is kind of like an all in one. So no cables, no PC, um, kind of the capabilities of the Vive or the Oculus. So six degrees of freedom tracking. We felt like this was, you know, this was a couple of years out, but, but we wanted to, we wanted to be building towards that and have the right product for when that, that hit the market. And so a lot of our plans were built around that.

• 45:34Speaker 01

  It was like, all right, how far can we stretch to make it towards that? I think we're still probably like, you know, 12 to 18 months out from that headset. But for us, we were really looking towards like, all right, how can we further our goal so that we have the right product when that inflection point comes?

• 45:51Ben Gilbert?

  You don't have to answer this, but who do you think it's going to be?

• 45:54Speaker 01

  The one that I've seen that's closest right now is the Oculus Santa Cruz. So they've shown it, I believe, at their last Oculus Connect. And it's a six degrees of freedom. It's not tethered to a PC or anything. It doesn't have any external cameras. It looks amazing. There's no release date announced yet. So I think that's what we're anxiously waiting for. We're keeping an eye out for when Oculus has more to share on that. But we're really excited for anything that has that kind of shape to it. I think there's just so much complexity in the VR space right now. It's not easy to set up. It's not in every person's product yet. But I think once you can take it out of the box and it just works

• 46:38Speaker 01

  and you don't need to check and see if it's compatible with your computer. I think that's a big game changer.

• 46:44Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 46:57David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 47:14Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 47:29David Rosenthal?

  And that's how you get features that customers love, like Tabular Review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 47:53Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 48:12David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 48:42Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you. All right, Nick, so one question that we had is basically, did you consider alternate fundraising scenarios? What if you had raised less? What would against gravity be today if the round came together differently?

• 49:19Speaker 01

  One of the things that we did decide pretty early on, after that 90 days, is we had a product and we didn't have much money and we decided to release that product for free. So it was not generating any revenue.

• 49:31David Rosenthal?

  Which also, we should note, that wasn't like a super obvious decision. I mean, if this were like the mobile app store, of course you'd release it for free. But many VR experiences were paid at that point in time.

• 49:41Speaker 01

  Most were paid. And actually, that was part of our acquisition strategy was we thought, we thought most VR content was single-player, pretty expensive and relatively short in terms of how much time you could spend in there. And we were like, Rec Room certainly has its flaws, but you could spend as much time as you want because the content is really other people and we're going to make it free. And that's going to be, that's going to be the way that we get a toehold in the market. So that was, that was our thinking upfront. I think if we had not raised funding, we would be focusing on, I would say, running known frameworks of monetization inside of Rec Room. So we wouldn't be focusing on long

• 50:22Speaker 01

  Longer term problems where like learning is really, it's unclear what the best practices are. I think because we've raised money, we're able to focus on things like, how do you focus on abuse prevention in VR? How do you focus on moderation tools? Like, that is an open-ended problem. It will be an open-ended problem for years to come. I think if you look at any social app on any platform, it's a huge portion of their investment and we're able to focus on that in a very big way.

• 50:52Speaker 01

  And, you know, that makes a, that makes a big difference. I think we're also able to focus on things like user-generated content. How do you enable people to express themselves and their ideas? And make those things come to life and share them with other people. We're able to focus on those problems with, which aren't revenue generating, because we have, we have breathing room with around. I think if we, if we didn't, you know, we would, we'd be making and selling hats, right? Like, you know, it's, they're much less interesting features and they're much less open-ended.

• 51:22David Rosenthal?

  On that, I don't really have ever asked you. In some ways, like the world you guys were coming from with, you know, Forza and in some ways, how Microsoft's thinking about HoloLens, like,

• 51:34David Rosenthal?

  I could imagine it would have been easier, tempting to be like, yep, we're going to box this software and sell it for 60 bucks a pop. Like, did that ever cross your minds? Or was part of this vision from the get-go being like, no, this is going to be free. This is going to be social. We're going to do this differently.

• 51:49Speaker 01

  We definitely had conversations early on about like, should we, should we make this 1999? Like, what, what does it look like if it's 1999?

• 51:59Speaker 01

  I think we were really inspired by the development of something like, like Minecraft. I think Minecraft really grew up in public and it earned its complexity by interacting with its community. It didn't come out day one and say like, oh, here's everything you can do with Minecraft. I mean, it slowly got more and more complex over time as people learned the systems. And as its community taught other community members the systems, like Minecraft doesn't have many tutorials. It's because there's millions of tutorials. Can find online from other players teaching each other. And I think what we believed was in order to get that kind of development cycle going

• 52:42Speaker 01

  in an early market with very few people, it had to be free. And putting it behind a paywall was just going to make that flywheel spin slower. So it was a risk, but it was a calculated risk. It was like, in order to build the product that we want, in order to get the feedback that we want, in order to build the community that we want, it has to be free.

• 53:01Ben Gilbert?

  The point about the fact that other people are the content and you guys don't have to engage in level building at a frantic pace in order to stay one step ahead of the community so that, you know, they'll have something to do.

• 53:15David Rosenthal?

  You don't have to pump out new DLC, everything.

• 53:17Speaker 01

  We still do though.

• 53:19David Rosenthal?

  I know, but actually I was thinking you do, yeah.

• 53:21Speaker 01

  Yeah, we've got a new one. It's a new pirate quest coming soon. So you can like swashbuckle with a couple of your friends. Yeah, it's gonna be great. Yeah, we really enjoy it. But we're also, you know, we love seeing the creativity of the community. They come up with so many ideas that we would have never even thought of.

• 53:38Ben Gilbert?

  I mean, it's really, I guess it's an internet theme. It's a thing that you couldn't really do without everybody being connected to each other all the time. It's like, you know, if you were playing GoldenEye on N64 alone, there's one exact experience that you can have every time. No matter how many times you go through it, the thing's gonna be exactly the same every time. But in a world like Rec Room, or let's say on a platform like Facebook, every time I load up the newsfeed, or every time I go to the same level or world in Rec Room, it's gonna be a unique experience because there's all this different content. So you can keep going through the same trotted ground over and over and over again and have different, unique experiences that have sort of longer engagement cycles and higher retention than you would otherwise.

• 54:21Speaker 01

  There's also this amazing ability for expression. I think there are so many people that have these amazing ideas and a lot of times the tech toolset is just kind of outside of their reach. And I think if you look at things like Unity or Blender, you know, they've opened up creativity for a lot of folks, but it's still not everyone. Like, not everyone can create 3D content. Not everyone can build a game. And so what we're aiming for with Rec Room is like literally anyone can come in and build something meaningful that expresses their personality.

• 54:53David Rosenthal?

  Yeah, you were telling us before we started about the frozen castle.

• 54:57Speaker 01

  Oh, yeah, somebody, somebody built a, you know, a replica of the castle from Frozen, including like costumes from the movie that you can, you can, you know,

• 55:08David Rosenthal?

  That's just so amazing.

• 55:10Speaker 01

  Yeah, we've seen amazing stuff like that. We've seen comedy clubs, we've seen two Rec Room users who met in Rec Room, decided to get married in the real world and they, they actually had their, their wedding reception in Rec Room.

• 55:27Speaker 01

  They invited like 40 of their closest VR friends. They, they made a VR bouquet for the bride. They made a wedding cake and they, you know, they actually had a ceremony with, with vows exchanged and everything.

• 55:40David Rosenthal?

  Were they wedding crashers?

• 55:42Speaker 01

  Everybody wore their fanciest avatar clothing. Yeah, it was, I mean, it was amazing to, to see like that. That was never something that we would have expected at the start. And I think those sort of emergent activities are the things that like really inspire us to keep adding new stuff.

• 55:58David Rosenthal?

  It's so funny when, when Facebook was just starting, when, when I was in college, I had a good friend, still very good friend, that I met at a summer program I did during college. And he went to school in Boston and my wife Jenny and I went to school in New Jersey. And then the next year Jenny was studying abroad with one of her friends from Princeton in Paris. And my buddy was Facebook friends with Jenny, and this was all, it was still like colleges only. And he posted on Jenny's wall, saw a picture Jenny had posted of her roommate in Paris, and said something like, "Hey, you know, thanks in advance Jenny, I know you don't know me very well for introducing me to your blonde friend."

• 56:42David Rosenthal?

  And then they got married a couple of years later. And that was like, that was like for me, that moment of like, "Man, this platform is like, and this has already happened in Rec Room. That's so cool."

• 56:53Speaker 01

  Yeah, yeah, I think, I think one of the other things that really got us excited about, about Rec Room, because, I mean, the internet has ushered in several social platforms. There was something just so different about social in VR. If you look at social on the web, it's actually largely asynchronous. It's largely text-based or photo-based. And so with VR, it's, it's all real-time and you get these subtle cues like people's heads tilt, you see their hand gestures, and it really feels like you're in the same room with somebody who maybe is on the other side of the world. You know, we've heard from several people that they have some fear about social interactions in the real world, but, but having, you know, the ability to practice in VR almost like

• 57:37Speaker 01

  helps them, helps like reduce their, their social anxiety. There's tons of people in the world who I think their, their wellbeing is not being satiated by the social software that's out there. Like, I think in many ways, we're, you know, we're more connected to more people now, but I think in many ways, people feel more alone due to, due to, you know, some social software. And I think what we want with Rec Room is really to foster some sense of wellbeing. Like, we really want this to be a place that you enjoy spending time and you look back a month from now and you, you think like, that was really time well-spent. Like, I'm really happy that I went in there and spent two hours hanging out with people.

• 58:14Ben Gilbert?

  Do you get the reference there that you just made?

• 58:16Speaker 01

  No.

• 58:17Ben Gilbert?

  Literally Mark Zuckerberg's word, words this last week was, "We want time on Facebook to be time well-spent."

• 58:23Speaker 01

  I didn't know that.

• 58:24Ben Gilbert?

  Yeah.

• 58:25Speaker 01

  No, I mean, we have, we have always, yeah, we have always focused on that. I think often we regret the time that we spend on Twitter or Instagram or something like that, but I think very rarely do we regret the time that we spend with our friends, you know, at a restaurant. And that's what we're trying to build in VR. We're trying to build that feeling where it's, where it's like, this is real social interaction. It's not a facsimile of it. It's like, we're really here together.

• 58:54Ben Gilbert?

  Look, I know we've doted on, you know, on Rec Room this whole episode, but like, that is what it felt like this weekend. We were hanging out and time was flying and, you know, it wasn't because the specific activity we were doing was cool. It's because like, we were sort of just hanging out together and like, of course, doing those quests was also cool.

• 59:15David Rosenthal?

  I mean, anytime you're hanging out together and you have, you know, bows and arrows and swords and paintball guns.

• 59:20Speaker 01

  Not a, yeah, not a bad time.

• 59:22David Rosenthal?

  Probably gonna be time well spent.

• 59:24Speaker 01

  That's true.

• 59:25Ben Gilbert?

  All right. So before we move on to tech themes officially for the episode, Nick, I just wanted to sort of get your take on the VR market today versus, you know, what a lot of probably overly inflated expectations were a year or two ago. And also, how has the dominant platform that people are using sort of shifted from your expectations? Or has it matched?

• 59:48Speaker 01

  Sure. So I think right now there are probably around four to perhaps five million high-end VR headsets. And these are things that give you kind of the facsimile of like hand motion and, and you kind of get the sense of walking. They're often referred to as six DOF headsets or six degrees of freedom headsets.

• 1:00:10Speaker 01

  Yeah, I think depending on which marketing report you read, it might've been, you know, hey, everybody and their brother has three Oculus in their, their home. I, I think there were some very optimistic reports out there, but I think.

• 1:00:22David Rosenthal?

  Including some by like Goldman Sachs and like.

• 1:00:25Speaker 01

  Yeah, yeah. Well, I mean, hey, I think they just published a new one like earlier this week that where, where I think they're predicting, you know, 30 to 60 million by 2020. I think the tricky thing is like, these things grow exponentially. They don't grow linearly. So, so when you miss, it feels painful in the, the earlier years. For us specifically, we were like, man, this is just gonna, this is gonna take 10 years. Like, it's just gonna take a long time before this is, this is a mainstream thing. We're in the, we're in the PDA phase of mobile phones. Like the, the iPhone moment hasn't happened yet. The BlackBerry moment probably hasn't happened yet. So I think we're still waiting for those moments, but we can see them on the horizon.

• 1:01:10Speaker 01

  And I think there are so much that you can learn as, as a software developer now, right? There, there is a critical mass of users that go in there every day and, and they're very vocal about what they want to do and what they expect the software to do. And you, you can be. Learning from that right now. And so that's, that's really where we focus. As far as where the dominant platform is versus my expectations. I think the one that's really run away with it, that surprised a lot of people, including myself, is PlayStation VR is currently the highest selling of those high end headsets. I think the reason is it's the cheapest and it's the easiest. There's something very simple about it. Like if I have a PlayStation VR and I just take it out of the box, it's going to plug into my PlayStation and it's going to work.

• 1:01:54Speaker 01

  And I think that that simplicity is missing in, in other segments of the market right now. People are working on it, but I think it's shown that consumers are reacting to the ease of use, they're reacting to the, the lower price point. I think it bodes well for anyone who's betting big on, hey, if we can make this easier and cheaper, more people are going to do it. I think there's, there's another camp in VR that's like, it needs to be way more immersive with more pixels, a wider field of view, haptic bodysuits. Ready Player One sooner rather than later. Hey, I look forward to all of those things. Like I, Rec Room will happily take advantage of each and every one of those. But I don't know that those are the barriers to, you know, another 10 million, 50 million people experiencing this. Tech themes?

• 1:02:37Ben Gilbert?

  Tech themes.

• 1:02:38Speaker 01

  Let's do it.

• 1:02:38Ben Gilbert?

  We finally arrived. You know, Nick, you had mentioned that these things happen exponentially and not linearly. And I think I'm stealing David's theme here from our notes, but technology waves and the difficulty to predict them. The fact that they grow exponentially, it looks like in, until an inflection point, it's just not going to be a thing. And then suddenly, all of a sudden, it's, it's going insane. And this is the, the new technology paradigm that everybody is using. And of course, we have the sort of Gartner hype cycle where you get this, this overinflated expectations and then the crash, but there actually is real long-term value building.

• 1:03:16Ben Gilbert?

  But, you know, if we look back at computing paradigms from the PC to the internet to mobile, the things we've talked about on this show, the sort of trillion dollar waves. It's still unclear what the next trillion dollar wave is going to be. And, and there have been like three things that I could have.

• 1:03:34Speaker 01

  sworn by that it's it's just not that obvious until you're actually in that vertical screaming pace going skyward that that is indeed the thing and that's the wave that you're on. And the three things to get specific were machine learning, cryptocurrency and VR. Like each of them, four moments of time and some currently now feel like that there's no doubt in my mind, it's the next internet or the next mobile. And we just don't know yet.

• 1:04:02David Rosenthal?

  Well, I think the, for me, then we can let Nick react, but I would, I would take the other side of that coin though, too, which is like, if you're actually going to build something meaningful in these waves that are coming, you need stamina, you know, more than anything else, right? And like, I mean, when was, when was Coinbase founded, like 2012, 2013?

• 1:04:22Speaker 01

  I think I saw it at South by in 2013.

• 1:04:24David Rosenthal?

  Yeah, so probably 2012, like, and we're now in 2018.

• 1:04:28Speaker 01

  And it seemed like a pretty established company then, like it was, yeah.

• 1:04:31David Rosenthal?

  Yeah, yeah. And it just takes, you know, that's why I think your fundraising journey is so interesting, right? Like, because that potential is there and it is growing exponentially. And, and that means it's going to grow very slowly for a long period of time. And you guys need the stamina to go through that.

• 1:04:51Speaker 01

  Yeah, I think, I think the way we look at it, and I kind of mentioned this earlier, is being able to build product in that trial is also, like, it can be really helpful. You know, your, your competition is limited, your user acquisition is very low. And you, you really can have a direct voice to customers, which, which you can't have it at a different scale. I think we went into this one with eyes wide open that it was like, look, this is just going to take a long time. And if you're not, if you're not looking for something that's going to take, you know, 10 years, like this, this might not be the market for you. There are plenty of markets where you don't need to wait that long.

• 1:05:32Speaker 01

  They have different dynamics and they have different challenges, but I think this one, yeah, stamina matters more than, than others.

• 1:05:38David Rosenthal?

  That brings up my next tech theme, which is, I hadn't written it down till you brought it up on the show. But you get the investors you asked for like it's just, you know, we talked about it earlier. I'll just underscore it again, like you need to be very thoughtful about what your company trajectory is going to look like, what you want it to look like, what reality is probably going to dictate it's going to look like. And then find the right folks to be investors and partners along the way that kind of share that same vision of the world. Because you can have a lot of conflict if you don't.

• 1:06:12Ben Gilbert?

  I got one more before we'll ask Nick if he has any, but mine's really domain depth of founders. I think that Nick, the fact that you and your founders, your fellow co-founders got a product out in three months. That was something you were willing to show investors and could have users actually using in a new paradigm. Like unless you had been experimenting with this stuff for the last several years and some of the only people on the earth that understood how this paradigm could actually work. I don't think you would have that incredible speed to market. And you can disagree with me on that, but I think some of the best companies are formed when somebody takes a deep dive on something and thinks deeply about it for a while and tries all the angles and then it becomes a thing and they start a business in that area.

• 1:06:58Speaker 01

  I think, I think any startup is really about learning. I think you're really trying to optimize for who can learn the fastest and who can compound what they're learning fastest. And, and if your knowledge is growing in a compounding rate, then like a small advantage at the beginning can, can make a meaningful difference. But that's still how we go into work every day now with Rec Room is like, what can we learn today? What don't we know? What assumptions do we have that are, you know, we haven't tested? Or this other data point from some other product is proving incorrect. Like, I think that's the way that you have to approach things in these early markets is there's so, there's so much learning.

• 1:07:40Speaker 01

  There's so much that we take for granted now in the mobile space or like the, the web space where people are just like, yeah, this is just how you do it. This is just how you lay out a website.

• 1:07:48Ben Gilbert?

  Put a hamburger button there.

• 1:07:49Speaker 01

  Yeah, this is just how you, you know, run an ad campaign, but like somebody had to go through all the pain of that, of figuring that out the first time.

• 1:07:56Ben Gilbert?

  Oh my gosh, it's like when Alfred was talking about the user acquisition through the advertisements and TSA. It's like now that's a regular thing and we think of that as an ad unit. Someone had to like try and pioneer and figure out if that was cost effective.

• 1:08:08David Rosenthal?

  Yeah. Or even like in mobile, like. How many years did it take before like free to play like became mature and like people realized that that was, you know, how mobile was games were gonna work, you know, probably arguably to the detriment of, you know, humanity. But, but, um, but yeah, it takes a long time to figure these things out.

• 1:08:29Speaker 01

  I mean, there were so many, there were so many assumptions that we made early that were, that were wrong. And I'm much happier that we like course corrected a little bit every week than we had a massive course correction two years later. And I think that would have happened if we, you know, had, had developed Rec Room in secret for two years and then tried to launch it in its perfect form. We would have just built the wrong thing.

• 1:08:50David Rosenthal?

  Yeah, that's actually, I'm gonna sneak another one in here. I'm so glad this came up on our, our first ever, you know, fundraising episode on acquired. Like, this is like such a classic mistake that, uh, I've seen so many founders make and then investors make it too, time and time again. You get sucked into this like, oh, we're gonna go build something in the lab. We're gonna go cook in the lab. To joke about Dr. Dre, uh, you know, I guess he can do it. But, um, but, uh, it doesn't work. It just doesn't work because you're not getting, exactly to your point, Nick, like in an early stage startup, especially in a new market, your lifeblood is your user feedback. And, and when you're in the lab, you're not getting that.

• 1:09:30Speaker 01

  I can say that I don't know if it never works. I can just say it would not have worked for us. Like our original idea, um, you know, there was much of it that, that was correct, but there was much of it that would have led us down the wrong paths. And so I think that market interaction is what, what course corrected us over time. I think we were, we were humbled a little bit here and a little bit there.

• 1:09:50Ben Gilbert?

  Carvouts?

• 1:09:51David Rosenthal?

  Carvouts.

• 1:09:52Ben Gilbert?

  I mean, I.

• 1:09:53David Rosenthal?

  Oh, wait, actually, did you have any tech names, Nick, that you wanna?

• 1:09:56Speaker 01

  No, I think you guys, I think you guys nailed it. Nice job.

• 1:10:00David Rosenthal?

  Thanks. What's, what's your grade for this episode?

• 1:10:04Ben Gilbert?

  Oh, yeah. Yeah, I think we'll skip that part.

• 1:10:08David Rosenthal?

  Yeah.

• 1:10:08Ben Gilbert?

  Mostly because it just doesn't fit this.

• 1:10:10David Rosenthal?

  We're learning, we're learning. We're making changes, we're learning.

• 1:10:13Ben Gilbert?

  That's right. Our carve-outs are not like supposed to be about the episodes, but this is just like the last book that I finished and we already mentioned it, but like if you haven't read Ready Player One and you think this episode is in the ballpark of interesting, you should totally go read it. It is like super, you could, you can blow through it pretty quick. It's super, super readable. It's really fun. It's prescient. Like I think that a lot, it's written in 2011 or 2012 and a lot of the things that people are talking about today with not only VR, but you know, the direction the world is going from a political perspective and from like a global warming, like there's just a lot of things that people are talking about that are major issues of our day that were sort of themes of the book five, six years ago.

• 1:10:58David Rosenthal?

  And I think the movie's coming out in like a month or so.

• 1:11:01Ben Gilbert?

  Yeah, I can't, I think it's coming out in March.

• 1:11:03David Rosenthal?

  Yeah.

• 1:11:03Ben Gilbert?

  I can't decide if I actually want to see it or not.

• 1:11:05David Rosenthal?

  Oh, I can't wait to see it.

• 1:11:06Ben Gilbert?

  Did you see Anders' Game? I don't.

• 1:11:10David Rosenthal?

  Yeah, Anders' Game's a little problematic, but.

• 1:11:13Ben Gilbert?

  Yeah, anyway, really, really cool book. And I'm actually very curious, Nick, do you like to liken Rec Room to a Ready Player One-like world? Or do you like intentionally stay away from stuff like that?

• 1:11:26Speaker 01

  There are a number of sort of canonical novels in the VR space. I think, I think that's one. And then Snow Crash is another one. We don't, we don't normally reference them, but I think it's, it would be hard for you to find any VR entrepreneur that hasn't been influenced by those books. I mean, I've, I've read it. I loved it. And I think, I think it's definitely influenced some of our thinking as has, as has Snow Crash. So I think there's plenty of people that are inspired by, you know, the ideas in that book.

• 1:12:02David Rosenthal?

  My carve-out is appropriate for today. It was recommended to me by Nick.

• 1:12:07Speaker 01

  And it's another Neal Stephenson book.

• 1:12:09David Rosenthal?

  And it's another Neal Stephenson book. That's right. So the book Seven Eves.

• 1:12:14Speaker 01

  Such a good book.

• 1:12:14David Rosenthal?

  Such a good book. It was, well, okay. So here's the thing about this book. Everybody should read this book. It is like, it is, I don't even, like, the whole construct is just like, the setup is something that like, really makes you think, really, really makes you think, and it's very cool. But I have to say, like, it is a hard book. It is quote unquote, hard sci fi, and, and it means hard in every sense of the word. Like, it is.

• 1:12:39Ben Gilbert?

  Not a short book.

• 1:12:39David Rosenthal?

  Not, not short. Extremely technical. Long 20, 30 page passages about like, the technical aspects of surviving in outer space when humanity is reduced to like, a couple hundred people, which isn't really giving anything away in the book. Anyway, very, very worthwhile read. Recommended me, to me, by Nick. So, thank you.

• 1:13:03Ben Gilbert?

  Nick and President Obama.

• 1:13:05David Rosenthal?

  Oh, and President, wow.

• 1:13:07Ben Gilbert?

  His reading list. And I have no idea how the guy found the time, but.

• 1:13:10Speaker 01

  I love Seven Eves. It's a great book. It's like, three great books.

• 1:13:13David Rosenthal?

  Yeah. Actually, I think it would have been better if it had been a trilogy. In, instead of one book. But I can see why he wanted to get it all out all at once.

• 1:13:23Speaker 01

  Speaking of stamina, that book, that, that book does, David, that's a reward stamina.

• 1:13:26Ben Gilbert?

  I can assure you Hollywood will make the movie a trilogy.

• 1:13:29David Rosenthal?

  I mean, they might have to do a trilogy just for the first part of the book.

• 1:13:35Speaker 01

  I would, I would love to watch a movie of that. That would, that would actually be really interesting.

• 1:13:38Ben Gilbert?

  Yeah.

• 1:13:39Speaker 01

  All right. So for, for mine, I'm gonna go with, with a video game. I'm gonna go with Zelda Breath of the Wild.

• 1:13:46David Rosenthal?

  Nice.

• 1:13:46Speaker 01

  It's been out for a while. I, I recently got a Switch and, and recently finished it. And I bought the Switch for that game. I just heard from so many people that it was, it was, it was amazing. And, and actually, the reason I wanted to, to list it as a call, as a carve out was, I think you often hear this, this phrase that like, there's only two strategies in business, bundling and unbundling. I think it's been used, like, quite a lot. And I,

• 1:14:17Speaker 01

  I think in many ways it's very, very accurate, but I think it reduces what you're bundling to, to a commodity. And I think if you look in the video space and you look at Hulu and Netflix, a lot of what they're doing is, you know, bundling and unbundling the same sets of content. I basically bought a $400 video game, like I bought the Switch for Zelda, and I think it goes to show that like, there, there are some content that transcends that bundling and unbundling strategy where people will do, you know, borderline irrational things to go and, and find this content. And I think, bundling and unbundling, it's really like taking advantage of an arbitrage opportunity, but I think as more people go after that, the arbitrage

• 1:14:58Speaker 01

  opportunities disappear. And so you're going to see the value of this tent pole content really being more and more important for, for distribution platforms. And I was reminded of that after playing that game. It is magnificent. It is amazing.

• 1:15:14David Rosenthal?

  I, it's funny, I'm, I'm considering doing the same thing, buying a Switch for-

• 1:15:17Speaker 01

  It was absolutely worth it.

• 1:15:19David Rosenthal?

  So the, I think during the launch period of the Switch, Breath of the Wild was, I think, the first in history game that had effectively a 100% attach rate to the console, meaning that, I mean, I'm sure there were a few people who didn't, but just basically 99.999% of people who bought a Switch during the launch window also bought Breath of the Wild.

• 1:15:42Speaker 01

  Wow. The last time that I can remember anything like that was, I, I do remember hearing that the original Halo had, had, there were at times where there had been more copies of Halo sold than Xboxes. And, and I, I had heard that it was similar with the Switch was, was there were more copies of Zelda sold than, than Switches at certain points. I actually got Zelda before I got the Switch, like-

• 1:16:04Ben Gilbert?

  Nick is the reason for this stat.

• 1:16:05Speaker 01

  It was really depressing for like a week. I could just stare at the game.

• 1:16:08Ben Gilbert?

  Oh, that's the worst. It's like when your phone case comes before your new phone.

• 1:16:11David Rosenthal?

  Okay, so what, uh, you know, we're extended carve out section here. Listeners, feel free to, you know, jump off if you want, go write us a review. I'm stealing Ben's line, but, uh, okay. So, so what's your take on the Switch? In general, and, and also do you primarily play in TV mode or, or handheld mode?

• 1:16:30Speaker 01

  When I first saw it announced, I was like, this is ridiculous. Like, I don't know why anybody would want to do this. This looks really weird. When I first saw ads for it, I did not think it was going to be successful. But I'm really falling in love with it as a console. It's really great. I spend about 50% of it in handheld and then 50% docked to the screen. It's amazing if you find yourself on a plane a lot as well. Like, if you're traveling a lot.

• 1:17:02David Rosenthal?

  If you're fundraising.

• 1:17:03Speaker 01

  It's a great device. Yeah, I think if you think about the Clayton Christiansen innovator's dilemma, where occasionally people will go past what is needed for consumers. I think there's definitely some of that going on in the gaming space. I think we might have gone past what consumers need in the CPU GPU. I think what really people are looking for is meaningful experiences, not necessarily more and more realistic graphics. And I think Nintendo has capitalized on that in a good way. It's not as powerful as the PS4. It's not as powerful as the Xbox. But it provides a very different value proposition.

• 1:17:45Ben Gilbert?

  Well, I gotta get one.

• 1:17:46David Rosenthal?

  There we go.

• 1:17:47Ben Gilbert?

  I mean, I got Apple Music at one point just to listen to Taylor Swift. So it seems like I need to get the Switch just to play this game. Well, on that note, Nick, where can our listeners find you on the internet?

• 1:18:01Speaker 01

  Oh, man. I have a pretty limited presence outside of VR. So I'm in rec room at Nick.

• 1:18:09Ben Gilbert?

  And that's it.

• 1:18:10David Rosenthal?

  You're blowing your cover right now.

• 1:18:12Ben Gilbert?

  No, no, that's it. That's the only way you can get to Nick. If you really want to talk to Nick, then that's the filter.

• 1:18:16David Rosenthal?

  Yeah, there you go. That's the filter. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:18:26Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:18:37David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:18:57Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:19:10David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:19:21Ben Gilbert?

  As far as calls to action for us, we would love a review on iTunes. I even wrote "calls to action" in the script. I don't think I was supposed to say that. So we have a Slack, acquired.fm. We're, I think we hit 1150. We're talking about all this stuff. And sometimes we're dropping hints as to who the next episode will be on. So join us for some little foreshadowing. All right. Thanks, everyone. Thanks, Nick. Thanks for having me.

• 1:19:44David Rosenthal?

  We'll see you next time.