Sword Health, an AI-powered virtual physical therapy startup, has raised $30 million to allow employees to sell $100 million worth of stock to new and existing investors, including Khosla Ventures. The round values the nine-year-old company at $3 billion, up 50% from the $2 billion it raised in its Series D in November 2021.
Sword CEO and founder Virgílio Bento told TechCrunch that the company had initially planned to only raise a $100 million second round in which employees and early investors could sell shares, but after the second round proved oversubscribed, the company decided to also raise a $30 million first round and update its valuation.
“It's a very demanding environment – long hours and high expectations – and we wanted to reward our team, especially our early employees,” he said.
Bent said Sword didn't need the capital infusion because it expects to be profitable by the end of the year, but he liked the signal the updated valuation sent in a tough fundraising environment for 2024.
“Given how irrational the market has been, no one really believes in valuations in 2021,” Bent said. While most employees know the company is performing well, Sword's clients, which include Fortune 500 employers and health plans, had no clear way to measure the company's progress. “We wanted to showcase growth, and valuations are one of those metrics.”
The company won't use the $30 million for its operations: “We're going to put it in the bank and let it earn good interest,” Bent 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 and Founders Fund.
Proving Sword is doing well will be important for the company as it competes directly with Hinge Health, another virtual therapy platform that was last valued at $6.2 billion in October 2021. TechCrunch reported that Hinge laid off 10% of its workforce in April as part of a plan to achieve profitability in preparation for a potential IPO.
Bent is also targeting an IPO for Sword, which he said could happen as soon as 2025 if the company grows as expected and the macroeconomic environment is favorable, but he wouldn't specify a time frame.
Meanwhile, the company is working on beefing up its AI, introducing Phoenix, a human-like voice genAI, to its musculoskeletal and female pelvic health care therapies. Phoenix powers all patient interactions and Sword's virtual therapists. “This is the final piece of the puzzle that makes Phoenix even more compelling,” Bento says.