Cloudhead Games Shocks Gamers With 30 Employees Laidoff on January 7

VR-first developer Cloudhead Games announced on January 5 that it would lay off 70% of its staff, effective January 7, 2026. Denny Unger, CEO of the studio, posted the announcement on X (formerly Twitter) and attached a link for reverse recruiting potential employees for other studios. Cloudhead Games laid off about 30 employees, with 16 employees remaining, according to Ian Hamilton of UploadVR.

Why Cloudhead Games Experienced Layoffs

Unger wrote that the “general downturn” of gaming as well as the unique and persistent challenges of virtual reality, namely “a lack of platform funding,” put the company in an “impossible position.” He concluded the post by saying that he will post more insight into the company’s challenges and “potential opportunities of our industry” in a later update. Currently, Mr. Unger responds to posts from fans and supporters of the company who send well wishes to those affected by the layoffs.

The Cloudhead Games CEO described the employees who were laid off as “consummate professionals and wonderful people in general.” He continued:

“We took collective pride in creating a culture that was as caring about VR content as they were working to support each other. Each and every one of them shared a true sense of ‘give a damn’ as we worked through still unseen projects, and they will be deeply missed at our studio.”

The CEO also said that the company believes in the power of VR as a medium and as a “shared dream machine that will transform humanity.”

About Cloudhead Games

Founded in 2013, Cloudhead Games is known for VR games such as 2019’s Pistol Whip, 2019’s Aperture Hand Lab (a Portal spin-off made in collaboration with Valve), 2016’s The Gallery – Episode 1: Call of the Starseed and 2017’s The Gallery – Episode 2: Heart of the Emberstone.

In 2017, Cloudhead Games released a sandbox VR game based on The Gallery – Episode 2’s Coliseum level. All of the studio’s games have Very Positive reviews on Steam. The studio continues to work on an unannounced game, according to Insider Gaming’s Grant Taylor-Hill.

The Canada-based VR game studio wrote in their press release that there is a general downturn and a global restructuring across gaming. Presumably, this likely means that Cloudhead Games will not be the last studio to experience layoffs in 2026.

Fans Respond to Layoffs

Under the press release, X user GAMERTAGVR replied, “Sad news but best of luck to those affected. I really hope Steam Frame kicks starts some interest for VR and a positive ripple effect across the entire scene.”

Another reply, this time from X user skeeva, said, “I hate to hear this. Cloudhead is a GOAT of the VR industry.”

On Bluesky, fans of the VR game studio shared similar sentiments. “I’m so sorry. As a VR game nerd and a big fan of the studio, this has made me really sad. You all deserve better,” wrote user Tom Stow.

Bluesky user ptom.net commended the studio for lasting as long as it has, given the volatile nature of gaming. Thanking the studio for sharing their art with the world, he wrote:

“I’m in here with you, both as a researcher and a developer to understand what makes the magic work, for whom, and why—we have a long way to go and an uphill challenge.”

Pistol Whip: Cloudhead Games’ Most Popular Game

Pistol Whip has a free DLC expansion titled the Heartbreaker Trilogy, released in 2020. The expansion features two modifiers and three new scenes. The John Wick-inspired shooter also took inspiration from games such as music and rhythm games, namely Sayonara Wild Hearts.

Regarding the game’s DLC, Ian Hamilton of UploadVR wrote, “the title remains a fantastic cinematic action experience delivered in one big package rather than metered out as paid DLCs.”