Sword Health well-stocked to weather any funding storm

Eight months after raking in $163 million, Sword Health CEO Virgílio Bento tells Axios that his digital musculoskeletal company’s cash runway extends through the middle of 2025.

Why it matters: Many digital health and health tech startups are navigating increasingly muddy waters with the IPO markets shut down, exit pathways less certain, and venture investors more discerning.

• Bentos says Sword was approached by SPACs last year but IPO optionality isn’t something he’s focused on today: “When it happens, it happens.”

Context: Sword's Sapphire Ventures-led Series D round in November (just five months after its Series C) propelled its valuation to $2 billion — reflecting 20x valuation growth in 12 months in concert with 12x client growth.

• Investors include General Catalyst, Khosla Ventures, Founders Fund, Bond, Transformation Capital and several others.

How it works: Sword, whose offerings are sold to employers, connects members with physical therapists 24/7 as needed. It provides wearable technology to monitor movement, prevent injury, and capture data during exercise, as well as educational content.

Zoom in: Sword recently entered the women’s health category after discovering what is a large and overlooked pain point.

• The company created Bloom, a separate offering leveraging motion sensor-based technology to address and relieve pelvic pain for women.

Yes, but: Sword has made two acquisitions to date (Vigilant Technologies in 2021 and Bright Technologies in January) and expects to be active in M&A over the next two years.

• Sword buys for distribution channels, geographic footprints, or a "stellar team," Bento says. "We’ve never bought a company because of a product they had," he adds.

Of note: When asked what advice Bento has for health tech founders in today’s market, he says, don’t always take what others are saying word for word.

• “I still recall very vividly in February and March 2020, when the COVID outbreak happened, everyone [top VCs] telling me I should lay off 20% of my workforce because the world is going crazy,” Bento says. “If we did that, we wouldn’t be where we are now.”
• Sword, rather, kept hiring aggressively — banking on the fact that an at-home model would be well-positioned in a world where everyone would be stuck at home for months.

Yes, and: Understand what questions VCs are going to ask you 12 to 18 months before fundraising, Bento says.

• Whether it's around the cost of acquiring a customer or how many deals you're winning, “then, when you get to that meeting, you have a beautiful chance to show them [what they want to see],” he says.
• The big question Bento prepped for ahead of its Series B: What’s your ability to compete against your direct competition?
• Bento asserts that Sword, starting in 2020 and every year since that time, has demonstrated it wins 70%-75% of business when competing with top competitor Hinge Health.
• By Sword's Series D raise, the big question was: How do you increase unit economics and gain as much market share going forward as possible?

Between the lines: “Now, the holy grail of stellar companies is exponential growth with an almost equal exponential increase in unit economics. It gets harder the [more] you grow,” Bento says.

The bottom line: Sword is not near profitability, but has a lot of bandwidth (and capital behind it) for business building.

• “We don’t want to be a company making sending pills to the home more efficient; that’s exactly what we are trying to destroy in the MSK space,” Bento says.
• The most pertinent question in front of Bento now: "What are the sources of pain in the world and how can we use technology to solve it?"