[Federal Register Volume 85, Number 200 (Thursday, October 15, 2020)]
[Notices]
[Pages 65449-65451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22824]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34049; File No. 812-15159]


Snowflake, Inc.

October 9, 2020.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Notice.

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    Notice of application for an order under Section 3(b)(2) of the 
Investment Company Act of 1940 (``Act'').
    Applicant: Snowflake, Inc. (``Snowflake'').
    Summary of Application: Applicant seeks an order under Section 
3(b)(2) of the Act declaring it to be primarily engaged in a business 
other than that of investing, reinvesting, owning, holding or trading 
in securities. Applicant states that it is primarily engaged in the 
business of operating a cloud-based data platform.
    Filing Dates: The application was filed on September 17, 2020 and 
amended on October 7, 2020.
    Hearing or Notification of Hearing: An order granting the requested 
declaration will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by emailing the Commission's 
Secretary at [email protected] and serving Applicant with a copy 
of the request by email. Hearing requests should be received by the 
Commission by 5:30 p.m. on November 3, 2020 and should be accompanied 
by proof of service on Applicant, in the form of an affidavit or, for 
lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, 
hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by emailing the 
Commission's Secretary at [email protected].

ADDRESSES:  The Commission: [email protected]. Applicant: 450 
Concar Drive, San Mateo, California 94402.

FOR FURTHER INFORMATION CONTACT:  Rochelle Kauffman Plesset, Senior 
Counsel, or David J. Marcinkus, Branch Chief, at (202) 551-6825, 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a Delaware corporation that, directly and through 
its wholly-owned subsidiaries,\1\ provides a cloud-based data platform 
(``Platform'') that enables customers to consolidate data to drive 
business insights, build data-driven applications and share data.
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    \1\ Applicant states that while its business operations are 
primarily conducted through the parent level entity, Snowflake also 
maintains wholly-owned subsidiaries that complement and advance its 
overall business model.
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    2. Applicant states that its business operations necessitate the 
Applicant to generate and maintain significant amounts of liquid 
capital. Applicant states that the cloud computing industry is a 
capital-intensive industry that requires it to have readily available 
capital for ongoing operations and expenditures. Applicant also states 
that it needs to maintain substantial liquid capital to fund research 
and development activities; address fluctuations in results of its 
operations; and pursue potential strategic transactions, including 
acquisition of businesses, new technologies, services and other assets 
and strategic investments that complement its business.
    3. Applicant states that it seeks to preserve its capital and 
maintain liquidity, pending the use of such capital to support its 
business operations, by investing in cash items, government securities, 
as well as in short-term investment grade and liquid fixed income and 
money market instruments that earn competitive market returns and 
provide a low level of credit risk (``Capital Preservation 
Investments''). Applicant states that it does not invest in securities 
for short-term speculative purposes.

Applicant's Legal Analysis

    1. Applicant seeks an order under Section 3(b)(2) of the Act 
declaring that it is primarily engaged in a business other than that of 
investing, reinvesting, owning, holding, or trading in securities and 
therefore is not an investment company as defined in the Act.
    2. Section 3(a)(l)(A) of the Act defines the term ``investment 
company'' to include an issuer that is or holds itself out as being 
engaged primarily, or proposes to engage primarily, in the business of 
investing, reinvesting or trading in securities. Section 3(a)(l)(C) of 
the Act further defines an investment company as an issuer that is 
engaged or proposes to engage in the business of investing, 
reinvesting, owning, holding or trading in securities, and owns or 
proposes to acquire investment securities having a value in excess of 
40% of the value of the issuer's total assets (exclusive of Government 
securities and cash items) on an unconsolidated basis. Section 3(a)(2) 
of the Act defines ``investment securities'' to include all securities 
except Government securities, securities issued by employees' 
securities companies, and securities issued by majority-owned 
subsidiaries of the owner which (a) are not investment companies and 
(b) are not relying on the exclusions from the definition of investment 
company in Section 3(c)(1) or Section 3(c)(7) of the Act.
    3. Applicant states that it does not hold itself out as being 
engaged primarily in the business of investing, reinvesting or trading 
in securities. Applicant states, however, that it maintains a 
significant amount of intangible assets, such as internally-generated 
intellectual property, that may not appear on its balance sheet. In 
addition, Applicant states that it

[[Page 65450]]

recently engaged in an initial public offering (``IPO'') but that 
proceeds from that offering has been deployed only on a limited basis. 
Applicant states that it intends to invest a significant portion of the 
IPO proceeds in Capital Preservation Investments. Applicant states that 
it also may make a limited investment in private companies consistent 
with its corporate strategy. Such investments are considered to be 
investment securities for purposes of Section 3(a)(1)(C) of the Act. 
Accordingly, Applicant states that while it currently does not meet the 
definition of investment company in Section 3(a)(1)(C) of the Act, it 
will likely meet that definition following its deployment of the 
proceeds from its IPO and will continue to do so over the long term.
    4. Section 3(b)(2) of the Act provides that, notwithstanding 
Section 3(a)(l)(C) of the Act, the Commission may issue an order 
declaring an issuer to be primarily engaged in a business other than 
that of investing, reinvesting, owning, holding, or trading in 
securities directly, through majority-owned subsidiaries, or controlled 
companies conducting similar types of businesses. Applicant requests an 
order under Section 3(b)(2) of the Act declaring that it is primarily 
engaged in a business other than that of investing, reinvesting, 
owning, holding, or trading in securities, and therefore is not an 
investment company as defined in the Act.
    5. In determining whether an issuer is ``primarily engaged'' in a 
non-investment company business under Section 3(b)(2) of the Act, the 
Commission considers the following factors: (a) The company's 
historical development, (b) its public representations of policy, (c) 
the activities of its officers and directors, (d) the nature of its 
present assets, and (e) the sources of its present income.\2\
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    \2\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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    6. Applicant submits that it satisfies the criteria for issuance of 
an order under Section 3(b)(2) of the Act because Applicant is 
primarily engaged in the business of operating its Platform and is not 
in the business of investing, reinvesting, owning, holding, or trading 
in securities.
    a. Historical Development. Applicant states that it was 
incorporated in 2012 and first offered its Platform in 2014, with data 
warehousing as its core use. Applicant states that customer have also 
used the Platform for additional purposes, including data engineering, 
data lakes, data science, data applications and data exchange.
    b. Public Representations of Policy. Applicant states that it has 
consistently represented publicly that it is engaged in the business of 
operating its Platform. Applicant represents that it has never held 
itself out, and does not now hold itself out, as an investment company 
within the meaning of the Act or as engaging in the business of 
investing, reinvesting, owning, holding, or trading in securities. 
Applicant's offering documents emphasize its operating results and do 
not emphasize either its investment income or the possibility of 
significant appreciation from its cash management investment strategies 
as a material factor in its business or future growth.
    c. Activities of Officers and Directors. Applicant represents that 
its board of directors and executive officers devote substantially all 
of their time to overseeing Applicant's business of providing its 
platform to customers. Applicant's cash management activities are 
managed internally by its Chief Financial Officer and externally by 
four investment managers, whose activities are supervised by the Chief 
Financial Officer. Applicant states that its Chief Financial Officer 
spends less than 1% of his time monitoring Applicant's cash balances 
and managing short-term investment securities in accordance with 
Applicant's investment policy. Further, Applicant states that no 
executive officer, other than the Chief Financial Officer, spends time 
monitoring the cash balances and managing short-term investment 
securities.
    Applicant states that as of July 31, 2020, it had approximately 
2,037 employees. Fewer than five employees spend time on matters 
related to the management of Applicant's investment securities.
    d. Nature of Assets. Applicant states that as of July 31, 2020 
Applicant's investment securities constituted approximately 20% of its 
total assets (excluding Government securities and cash items) on an 
unconsolidated basis.\3\ Furthermore, 100% of its investment securities 
consisted of Capital Preservation Investments. Applicant anticipates 
that once proceeds from the IPO are deployed, approximately 89% of its 
total assets (excluding Government securities and cash) will be in 
investment securities, substantially all of which will be in Capital 
Preservation Investments. In addition, Applicant states that it may 
also invest in private companies as part of its corporate strategy. 
However, Applicant states that it does not plan to invest more than 10% 
of its total unconsolidated assets (excluding Government securities and 
cash items) in investment securities that are not Capital Preservation 
Investments, including investments made as part of its corporate 
development strategy. Applicant states that it expects to continue 
investing in Capital Preservation Investments, as well as Government 
securities and cash items, to fund its current and future operations.
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    \3\ Applicant states that none of its subsidiaries holds 
investment securities.
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    e. Sources of Income and Revenue. Applicant represents that since 
its inception it has had net operating losses. It does, however, derive 
income from its investment securities. Applicant states that a review 
of its current sources of revenues provides a more accurate picture of 
its operating company status, particularly given the upward trend in 
recognizing substantially increased revenues based on the growth in its 
customers usage of the Platform. Applicant states that, for the fiscal 
year ended January 31, 2020, Applicant earned approximately $252.2 
million of product revenues, compared to $95.7 million as of January 
31, 2019. In contrast, Applicant earned $10.8 million in net investment 
income in the fiscal year ending January 31, 2020 compared to $ 8.4 
million in net investment income in the prior fiscal year. All such 
income was derived from the Capital Preservation Investments, 
Government securities and Cash Items. Applicant states that if net 
investment income were compared to its total revenues it would account 
for approximately 4% of total revenues in the fiscal year ended January 
31, 2020 and approximately 9% of total revenues for the prior fiscal 
year.
    7. Applicant asserts that its historical development, its public 
representations of policy, the activities of its officers and 
directors, the nature of its assets and its sources of revenue, as 
discussed in the application, demonstrate that it is engaged primarily 
in a business other than that of investing, reinvesting, owning, 
holding, or trading securities. Applicant thus asserts that it 
satisfies the criteria for issuing an order under Section 3(b)(2) of 
the Act.

Applicant's Conditions

    Applicant agrees that any order granted pursuant to the application 
will be subject to the following conditions:
    1. Applicant will continue to allocate and use its accumulated cash 
and investment securities for bona fide business purposes; and
    2. Applicant will refrain from investing or trading in securities 
for short-term speculative purposes.


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    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22824 Filed 10-14-20; 8:45 am]
BILLING CODE 8011-01-P