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Databricks, a $38 Billion Startup, Creates Its Own Venture Fund

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(Bloomberg) -- Databricks Inc., a data analytics software maker, is launching a venture fund that will back startups using its tools, and young companies it sees as potential partners.

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The San Francisco-based company gained a $38 billion valuation by popularizing what it calls the data lakehouse. Backers claim this updated way to store, cull and analyze information will be a death knell for the data warehouse, a software technology that has remained a staple within corporate IT portfolios for more than three decades. To push that vision along and compete against rivals like Snowflake Inc., Amazon.com Inc. and Alphabet Inc.’s Google, the company has created Databricks Ventures, which will invest in companies that adopt the data lakehouse.

The fund will also deploy capital to startups that can serve as key integration partners, relationships that are of growing importance as end customers look to use cloud computing to more easily share data across different software programs.

Planning for the new fund began when “Andreessen Horowitz alerted us and said ‘We’re seeing a lot of pitches with lakehouse in them,’” Databricks Chief Executive Officer Ali Ghodsi said. “They want to build dedicated apps, or platforms, or companies on top of it.”

Databricks is not capping the amount of money it will dedicate to the fund. Former New Relic executive Andrew Ferguson will lead the unit, the company said Thursday in a statement. Overall, the closely held company has raised $3.5 billion from investors.

Corporate-backed venture funds are nothing new. Most software industry titans, including Salesforce.com Inc. and Workday Inc., have their own investment arms. But unlike software-as-a-service applications, which can be easier for organizations to switch, storage systems like the data warehouse are often much more difficult to swap. And with yearly maintenance, legacy programs can continue to run in perpetuity. That’s why businesses could still be relying on a data warehouse from Teradata Corp. deployed in the early 1980s.

Cultivating a relationship with a startup can be lucrative for data storage providers, given the need for their services will likely significantly expand as those newer companies grow. And vendors like Snowflake, Databricks and MongoDB Inc. are banking on their status as relative up-and-comers to beat out long-standing providers like Oracle Corp., which also has its own investment arm.

“When startups are betting on MongoDB Inc., that’s a great sign for our future. Because the question I’d ask you is, how many startups today are using Oracle? And I can’t think of many,” MongoDB CEO Dev Ittycheria said on a recent earnings call.

Databricks has a perhaps loftier goal than some rivals. Snowflake, for example, runs a venture fund that has backed companies like Lacework Inc., which bases its main operations around Snowflake’s cloud data warehouse. Databricks is pushing a new type of architecture, one that may still be viewed with skepticism by some corporate purchasers, which makes its relationship with startups all the more important.

“A partner ecosystem of integration is really critical to our success as a platform to make it easy for customers to use Databricks and the lakehouse,” Ferguson said.

The launch of the venture fund comes ahead of Databricks’ highly anticipated initial public offering. Ghodsi declined to comment on future IPO plans.

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