Sword Health raises $130 million as valuation soars to $3 billion

Sword Health, an AI-powered virtual physical therapy startup, has raised $30 million and enabled employees to sell $100 million worth of equity to new and existing investors, including Khosla Ventures. The round brings the nine-year-old company’s valuation to $3 billion, a 50% increase from the $2 billion valuation it raised in its Series D in November 2021.

The company initially set out to raise only the $100 million secondary round that would allow employees and early investors to sell shares, Virgílio Bento, CEO and founder of Sword, told TechCrunch. But when he saw that the secondary round was oversubscribed, the company also decided to raise a $30 million primary round and update its valuation.

“It is a very intense environment: long days and high expectations. “We wanted to reward our team, especially our early employees,” he said.

Sword did not need the influx of capital because it is expected to be profitable by the end of the year, Bento said. However, he liked the signal that an updated valuation would send during the difficult fundraising conditions of 2024.

“No one really believes in 2021 valuations, given how irrational the market was,” Bento said. While most employees know the company is doing well, Sword’s clients, which include employers and health plans of Fortune 500 companies, had no clear way to measure the company’s progress. “We wanted to show our growth and the valuation is an indicator of that.”

The company will not use the $30 million for operations. “It will be in the bank, generating a lot of interest,” Bento said.

The latest primary round brings Swords’ total funding to $340 million. In addition to Khosla Ventures, the company’s investors include General Catalyst, BOND, Founders Fund and others.

It’s probably important for the company to show that Sword is doing so well because it competes directly with another virtual therapy platform, Hinge Health, which was last valued at $6.2 billion in October 2021. In April, Hinge fired the company. 10% of its workforce as a step in its plans to reach profitability in preparation for a possible IPO, TechCrunch reported.

Bento is also targeting a Sword IPO. If the company grows as expected and the macroeconomic environment is favorable, it could potentially go public in 2025, but the company is not committed to a specific timeline, Bento said.

Meanwhile, the company is beefing up its AI. She is introducing a human-like voice for her genAI, called Phoenix, into her musculoskeletal therapy and women’s pelvic healthcare therapy. Phoenix powers all interactions with Sword’s patients and virtual therapists. “It’s the last piece of the puzzle that makes Phoenix that much more attractive,” Bento said.

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