Sword Health Secures $130M Funding, Achieves Impressive $3B Valuation

Sword Health, an innovative AI-driven virtual physical therapy startup, has successfully raised $30 million while enabling employees to sell $100 million worth of equity to both new and existing investors, including Khosla Ventures. This funding round elevates the nine-year-old company's valuation to $3 billion, marking a 50% increase from the $2 billion valuation it achieved during its Series D funding in November 2021.

Initially focused on executing a $100 million secondary round to allow employees and early investors to liquidate shares, CEO and founder Virgílio Bento noticed an overwhelming interest. As a result, the company opted to also initiate a $30 million primary funding round to update its valuation.

“It’s a very intense environment: long hours and high expectations. We wanted to reward our team, especially our early employees,” Bento explained.

Although Sword does not require additional capital, as it anticipates profitability by year-end, Bento recognized the value of signaling an updated valuation amidst the challenging fundraising landscape of 2024.

“No one really believes in the valuations of 2021 due to the market's irrationality,” he expressed. While employees are aware of the company's success, its clients—employers and health plans among Fortune 500 firms—lacked a straightforward method to assess its progress. “We wanted to showcase our growth, and valuation serves as one indicator of that."

The company intends to keep the $30 million in reserve, as Bento stated, “It’s going to be in the bank, generating nice interest.”

With this latest primary round, Sword Health's total funding has reached $340 million. Beyond Khosla Ventures, other notable investors include General Catalyst, BOND, and Founders Fund.

Demonstrating its growth is crucial for Sword, especially as it faces competition from Hinge Health, another virtual therapy platform valued at $6.2 billion as of October 2021. Earlier this year, Hinge Health laid off 10% of its workforce to enhance profitability in anticipation of a potential IPO.

Bento has ambitions for Sword to go public as well. If the company grows as projected and the macroeconomic environment remains favorable, an IPO could be on the horizon for 2025, although Bento has not committed to a rigid timeline.

In the interim, Sword is enhancing its AI capabilities. The company plans to introduce a human-like voice, named Phoenix, to its generative AI, which will be utilized in musculoskeletal therapy and women’s pelvic health care. Phoenix will facilitate all patient interactions and support Sword’s virtual therapists. “It’s the last piece of the puzzle that makes Phoenix much more engaging,” Bento noted.