Sword Health: The $3B Portuguese-Born Startup Freeing 2 Billion People from Pain with AI Care

(5 minutes)

Hi 👋, this is the Today in AI Newsletter: The weekly newsletter bringing you one step closer to building your own startup.

We analyze a cool, industry-shaping AI startup every week, with a full breakdown of what they do, how they make money, how much they’ve raised, and the opportunity ahead. 

Let’s get to the good stuff in this email: 

• This startup is on a mission to free 2 Billion people from pain with AI

• They’ve done over $200M in ARR in 2023, up 170% year over year, and have just turned profitable

• They’ve raised $450M+ in funding with their latest valuation at $3B

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So what’s the startup and who are the founders behind it? Here’s the story of Sword Health 📈

Sword Health was founded in Portugal in May 2015 by Virgilio Bento with the mission to make healthcare accessible to everyone on earth. 🌍 

Sword Health uses AI to power virtual physical therapy to help people recover from pain and essentially avoid surgery. 🩻

They’re able to do this through their AI care model: Phoenix 🐦‍🔥, which solves patients’ problems, giving them instructions and feedback in a highly engaging way.

It combines what human clinicians and AI each do best, so that everyone, everywhere can get the clinical-grade, life-changing care they deserve.

Backstory 👀

The idea behind Sword came from Virgilio’s upbringing where as a young boy, he saw the challenges families faced when they had to take care of their loved ones. 🏡

His brother had to take physical therapy and Virgilio saw the struggle his parents had to overcome to deliver that care. This stuck with him for many years to come…

Virgilio did a Masters in Electrical Engineering at Universidade de Aveiro in Portugal and wanted to pursue the idea for virtual physical therapy right after. 👨‍🎓 

The idea made sense to him. It would make healthcare accessible to everyone for cheaper, tackling a multi-trillion dollar industry. 💸

There was only one problem. It was impossible to get funding in Portugal with just an idea and a Powerpoint in the early 2000’s. Any angel he approached thought he was crazy.

The only feasible way to get funding for this was through a research grant, which he could only apply for after getting a PhD, and doing more research on the field. 🧑‍🔬

Virgilio ended up doing the PhD in electrical engineering at the same University - an unintended consequence of his main goal, to get funding for his idea.

While earning his PhD in 2012, he finally received his first $100K research grant to go all in on this idea. This is when he started developing the tech for Sword Health. 🏥

Between 2012 and 2015, Virgilio raised the following pre-seed rounds 💰:

First pre-seed: $150K

Second pre-seed: $250K

Third pre-seed: $400K

By 2015, Virgilio officially founded Sword Health and won a $1M european research grant to accelerate the development of the tech he was building.

Cold email to Khosla Ventures 📧

According to Virgilio, the early beginnings between 2015 and 2019 were the most challenging. 🤷‍♂️ Sword had been developing the tech without touching the market and were trying to survive off of small investments.

This is when they decided they needed to raise a Series A. The problem was no one wanted to invest because Sword had “no commercial traction”. 💴 

Virgilio continually contacted Tier 2 and Tier 3 VCs in Europe for their Series A, where he got more than 50 “No”s. He needed funding from Silicon Valley. 

Virgilio decided to cold email Khosla Ventures for his Series A because he knew they were contrarian and didn’t have to see any “commercial traction” to invest. 📈

Their investments were more science-based and they did not care about the investors already on the cap table. 🧬 

Here’s the email he sent (He shared this publicly on a Twitter thread last year):

Instantly, Virgilio got an email back saying that they were interested and scheduled a call for the next day.

On this call, it had been the first time an investor discussed the clinical purpose of the tech rather than market size and commercial viability. 👩‍⚕️ This was super refreshing for Virgilio. 

Within 3 days, they got a call scheduled with the man himself, Vinod Khosla. He was perceived as a god at this time and an idol Virgilio looked up to a ton. 😳

The call was a very technical and intellectually demanding discussion about Sword and its future helping people, and by the end of the call, they said they wanted to invest.

Khosla Ventures presented a term-sheet for an $8M Series A to help Sword accelerate development even faster and start hiring more people to get to market.

This was the first time someone truly saw the potential of what Sword Health was. 🤯

The bottleneck to Sword at the time wasn’t even their access to capital, it was their access to talent.  Khosla Ventures helped Sword find a Chief Talent Officer who started hiring the best talent in the field.

They built out a team in the US and publicly launched in January 2020. They got their first client with a contract worth $1.5M in May, and by the end of 2020 closed on a client with a $4M/year contract. 💸 

This is when they’d officially found Product-market fit.

By 2021, Sword Health raised a Series B,C and D all in one year. This brought their total raised in 2021 to over $250M.

This also brought their development speed and access to talent to a whole other scale.

Phoenix - AI care model 🐦‍🔥

Earlier this year, Sword launched Phoenix, the world’s first AI care specialist that communicates with members through natural conversation to predict, prevent and treat pain. 🩺

If you look at The No.1 problem for stakeholders in the healthcare space, it’s patient engagement. Sword looked at how they could make their AI care models more engaging.

They found that through making the model more human-like, and able to change based on what you talk to it about, it could provide actionable feedback in a highly-engaging way. 🤗

This would also give patients access to physical therapy 24/7, so if they had an issue at 4am, for example, they could just ask their virtual PT.

The model would also need to be able to measure the movement of the patient as they do therapeutic exercises in a clinical way.

Based on this, the model provides feedback, and uses LLMs to voice this feedback in natural language. 🗣️

Stats 📊

🏆 Right now, Sword Health are the single largest provider of care through AI, holding a majority of industry patents and a 70% win rate in competitive evaluations.

📈 In 2023, they delivered 1.5M AI care sessions, and completed over 15M minutes of AI therapy with 64% of those members becoming “low-risk” for surgery by the end of their programs.

🤑 This has also saved clients $130M+ in unnecessary healthcare costs, where the AI care model delivers a 3.2:1 ROI on medical spend (The highest validated ROI in the industry).

🚀 In 2023, Sword Health did around $200M in ARR with 2.7x growth year over year. They just turned profitable in Q3 2024, with $500K in positive cashflow.

💰 In June 2024, Sword Health raised a $130M Series E at a $3B valuation led by Khosla Ventures with participation from General Catalyst, BOND, Founders Fund, Sapphire Ventures and others. This brings their total raised to over $450M.

☄️ Virgilio says that Sword is on a mission to free 2 Billion people from pain by pioneering the field of AI care and that they’re only 5% of the way there.

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