Intelligent Fund Management, LLC

Intelligent Fund Management, LLC
Summary
Ed Downs, founder of Nirvana Systems, Inc. (“Nirvana”), is forming a new limited liability company
under the name Intelligent Fund Management, LLC (“IFM”) to address the needs of individual investors.
The new product, OmniFunds, for which a software prototype currently exists, will be developed using
initial funds raised from this offering.
The recent introduction of automated investment management companies, aka “Robo Advisors” has
created a funding phenomenon in the financial services space. We believe that the Nirvana team is in a
unique position to apply the knowledge gained over 20 years of automated trading system development to
create a new system that provides increased transparency and control for the user. The new fund
management product will be developed in IFM.
IFM will purchase the intellectual property rights in the OmniFunds product, and will license additional
technology from Nirvana. It will enter into a services agreement with Nirvana to complete development
of the product. It will then seek to market the product to individual investors, and through individual
investment advisers.
The Robo Advisors collectively have about $7 Billion in assets under management (AUM), and have
received over $600M in funding from the financial services space, and from venture capital firms active
in the space. However, the self-directed 401k and IRA companies have a collective $12 Trillion under
management. There is already activity with respect to automated fund management in the 401k area (see
Automated 401k Management). 1 We believe this represents an enormous opportunity.
To address and engage these markets, IFM will engage a two-pronged approach: First, we will create a
consumer product for automated ETF Switching. Then, according to the timeline in the Pro Forma, IFM
will approach the IRA/401k space to tailor a system based on our switching technology, which is
designed to meet the needs of these firms as we understand them. By executing this plan, Mr. Downs
believes significant potential exists for IFM to create products of value in this fast-growing sector of the
financial markets.
The initial “seed” funding goal is $1 million in return for 20% of the company. Investors will potentially
realize a return from several sources, including (a) a pro-rata share of income earned by IFM from net
revenue from sales and license arrangements generated through marketing efforts, (b) personal profits
from investing with the product, should the investor choose to use it for that purpose, and (c) proceeds
from the acquisition of IFM by a large investor or outside firm.
This investment involves a high degree of risk. While an early prototype exists, OmniFunds has yet to be
developed in its final form, and yet to be marketed to individuals outside Nirvana’s customer base or
presented to the financial community. Profits from investing with the product are not guaranteed, and
IFM is not currently in discussions regarding an acquisition. Please see the Risk Disclosures on page 12.
Background Information
Ed Downs founded Nirvana Systems in June 1987 for the purpose of providing automated trading
solutions to investors. Nirvana’s products include OmniTrader, first released in 1994, followed by
VisualTrader, which was released in 2002. Traders have been managing their brokerage accounts using
these and other Nirvana products for the past 22 years.
1
See: Automated Investment Management Products for the IRA/401k Space on page 5.
1
In 2009, Mr. Downs and his team began working on a way to use the Trading Strategies developed for
these platforms. Omni Traders International, LLC (“OTI”) was formed to create OmniVest, a web-based
product which leverages Nirvana’s Trading Strategy expertise.
OmniVest was released through MB Trading and the TradeKing Securities Group in 2013 and 2015,
respectively as part of a revenue sharing arrangement. The adoption of OmniVest by these brokers
affirms Nirvana’s position in the field, and provides the experience base on which the Nirvana team can
create additional products in the self-directed investment space.
Over the past few years, investment companies have emerged that use an automated risk-adjusted
selection of Exchange Traded Funds using a methodology called, “Modern Portfolio Theory” or MPT.
The Nirvana Team believes it can create a new product that outperforms MPT, through Market State
Switching and Strength-Based Ranking. The product will be called OmniFunds.
Why OmniFunds?
The Robo-Advisor Process
The financial services market is undergoing substantive changes,
challenging the traditional Investment Advisor approach. Over
the past two years, a number of automated fund management
companies have emerged that are commonly known as “Robo
Advisors”.
Here are some of the offerings that have emerged over the past
few years, with funding rounds and recently published assets
under management:
Company Funds Raised 2 AUM 3 Wealthfront $129.5 M in 5 Rounds
$2.5 Billion Motif Investing $126.5 M in 6 Rounds not published
Betterment $105 M in 5 Rounds $2.5 Billion Personal Capital $102.3 M in 6 Rounds
$1.7 Billion Learnvest Future Advisor SigFig 1. The investor is asked a series of
questions:
 How much do you want to invest?
 What is your time horizon?
 How much risk can you afford to take?
2. An algorithm based on Modern Portfolio
Theory is used to select different asset
classes based on the user’s answers.
$72.13 M in 5 Rounds not published
$21.5 M in 4 Rounds $16 M in 2 Rounds $600 Million $60 Million The foundation of the approach that most of these companies
take to manage client funds is commonly known as “Modern
Portfolio Theory” 4 – a concept that was published in 1952 by
Harry Markowitz.
These companies offer an “advisor-like” approach by soliciting
questions from the investor regarding such inputs as the amount
to be invested, the customer’s income, risk tolerance, time to
retirement, and other factors.
Typical Mix of Asset Classes
generated by Modern Portfolio Theory
3. The mixture of assets in each class is “rebalanced” periodically based on
performance – essentially, the allocation to
the lower performing assets is increased to
bring the ratios back in line with the
original allocation.
As a result of the answers to these questions, the Robo Advisor
runs calculations and recommends a certain mix of ETFs that the
2
CrunchBase Inc. https://www.crunchbase.com/#/home/index
http://www.investmentnews.com/article/20160115/FREE/160119956/which-robos-got-off-to-the-fastest-start-in2016
4
https://investorjunkie.com/35919/robo-advisors/
3
2
client should hold. This process is discussed and illustrated above. These mixes are “re-balanced”
occasionally based on performance of the ETFs.
Modern Portfolio Theory: Not a Panacea
Asset mix for a taxable account portfolio at Wealthfront.
Typical published return
expectation is 6% per year.
But most of the marketing
“pitch” on these sites has to
do with cost savings to the
investor. Costs incurred to
the investor for placing their
funds with a Robo Advisor
firm are typically 0.35% to
0.5% of funds under
management. But how
important is saving money
versus making a return? Our
research indicates that for
several of the Robo Advisor
firms, this approach has
generated losses for investors
in the past year, as the market
has changed character.
To the left, we see a portfolio
generated by Wealthfront for
a taxable account application.
The portfolio invests in six
ETFs, spreading the account
across six different asset
types.
WealthFront Portfolio
Down 6.9% Jan1 to Oct1, 2015
From 1/1/2015 through 10/1/2015, this portfolio was down more than the
general stock market.
This chart from a mainstream Robo Advisor Ibbotson Associates, Inc. shows
the MPT-based “Core” and “Momentum” Portfolios down from Q2 2014 to Q3
2015, the last quarter published. https://tradekingadvisors.com/perf_disclosure
3
While such an approach is
clearly diversified, it does not
eliminate most of the risk
inherent in the market. An
investment in this mix from
January 1, 2015 through
October 1, 2015 would have
performed worse than a
position in the S&P 500.
The image at the bottom of
the page shows historical
(theoretical) and actual
Portfolio Returns published
by mainstream Robo Advisor
firm, Ibbotson. All of them
were down over 18 months.
OmniFunds: Moving Beyond Modern Portfolio Theory
Even with such lackluster performance, we see evidence that the Robo-Advisor concept has been wellreceived, with over $7B in assets under management in these companies according to publicly-available
information. This indicates there could be a significant demand for automated investment management
products that are diversified automatically, adjusted periodically, and that are available for a low cost.
The question is, “How important are
returns?” While saving on fees is
important, IFM believes that returns
and risk reduction have become more
important to investors – especially
given recent performance in many of
their Robo Advisor accounts.
As Ed and his team began to study this
opportunity, they realized that recent
research has the potential to improve
performance over the MPT approach
through the application of “Market
States” and “Internal Ranking.”
Market States offer a rational way to
select an asset mix based on how the
general market and internal sectors are
behaving, rather than using a fixed
allocation in all markets. One example
is shown to the right.
Once a mix of Assets is determined,
specific ETFs can be selected by
ranking the components of the ETFs
using switching algorithms recently
developed by Nirvana. An early
outcome based on such an approach is
shown to the right.
Ed and his team believe that the
addition of Market States and Internal
Ranking to the ETF Switching
problem has the potential to improve
results for individual investors. These
technologies are being employed now
to further the development of the
OmniFunds platform.
It is important to note that IFM is
being built as a technology provider.
Users will be able to manage their own
accounts using the technology for a
fee. OmniFunds may be licensed or
sold to Robo Advisors or other
financial services companies who act
as fiduciaries over customer accounts.
Market State Concept. In a “Normal” market we can start with an MPT mix
of assets. But when we detect a volatile market, we can switch into more
conservative positions, as shown to the right above.
Switching Test: This historical back test from January 1, 2013 through
December 31, 2015 was generated using two Market States. In non-volatile
markets, Sector ETFs were enabled. In volatile markets, Bonds and Inverse
ETFs were used. This generated a theoretical annual return of 18% over the
test period.
4
Automated Investment Management
Products for the IRA/401k Space
A September 11, 2015 article in Investment News5
opened with the following:
“Breaking new ground in retirement planning,
Betterment, one of the largest robo-advisers in the
industry, will begin offering 401(k) plans to
employers.” Jon Stein, CEO of Betterment said, "We think now is the moment the country is calling to
us … it is past time for this to happen."
This recent news from Betterment is significant for IFM. In June 2013, the American Benefits Council
reported there were 74 million active participants in 401k plans, with an average investment of $91,000
each ($3.8T total investment)6. If Betterment (and other Robo Advisors) break ground in the 401k
market, we believe they will (and probably already have) created interest in automated fund management
technology in this space.
As the 2nd part of our plan, IFM intends to leverage early results from its fund switching algorithms to
approach the 401k space, meeting with principles and founders within the industry, telling our story and
demonstrating what the OmniFunds technology can do. Part of this market research will take the form of
working directly with these companies to re-configure our OmniFunds technology and web site into a
format they can promote to clients.
It is IFM’s belief that such market research will open doors in the space that could lead to a significant
investment or a buy-out of the OmniFunds technology. In addition to the 401k companies and IRA
companies, IFM plans to approach equity investors in the financial services industry that funded
companies in the self-directed space.7
www.ici.org
The table to the left from www.ici.org shows
how the 24 Trillion dollars invested in all
types of retirement plans is divided across the
various categories, including IRAs and 401k
plans.
IRAs held $7.3 Trillion in 2015; 401k plans
were in second place at $4.5 Trillion. Both
groups represent large target markets for an
OmniFunds investment approach.
With “Robo Advisor” firms moving to service
401k plans, the market may be ready for an
active, automated switching method that
focuses on ways to minimize risk and
maximize returns.
5
Investment News: http://www.investmentnews.com/article/20150911/FREE/150919985/betterment-to-becomefirst-major-robo-adviser-to-offer-401-k-plans (Betterment article)
6
American Benefits Council: http://www.americanbenefitscouncil.org/pub/e613e1b6-f57b-1368-c1fb966598903769
7
Motif Investing: Capital rounds from J.P. Morgan and Goldman Sachs, Ignition Capital, Balderton Capital,
Foundation Capital, Wicklow and RenRen. https://www.motifinvesting.com/about/leadership-team.
5
Current Status
In the Summer of 2015, the Nirvana team built the first working prototype of an OmniFunds application.
This prototype is based on Nirvana’s VisualTrader (VT) trading platform, because VT has an embedded
simulator and all the features required to calculate Market State.
Prototype Application running in VisualTrader 11
Nirvana customers are currently using the prototype to develop their own switching algorithms.
Determining which algorithms provide the best switching dynamics is part of the research that needs to be
completed.
Switching between ETFs can be done in many ways. Switching Algorithms currently being tested:
•
“Mean ETF Strength” – Measures the strength of the internal components of each ETF to determine if
the ETF itself should be traded.
•
“Multi-Group Balancing” – Switches between multiple groups of ETFs, selecting the individual ETFs
based on their technical signature or predicted strength using technical methods.
•
“Timing and Safety” – Rank all ETFs according likelihood of a rally (timing) and how volatile they
are (safety). Selects the ETFs with the best timing and safety.
•
“Strong ETFs” – Trades symbols WITHIN a leading ETF by selecting the “laggards” within the
strongest ETFs and trading them.
These approaches and others will be tested to find the best mix and configuration for different OmniFund
methods. These methods will be represented with more conventional names as we near release, like
“Aggressive Growth” or “Global Balanced”. Funding from this offering will enable Nirvana to complete
the OmniFunds Software Application (based on the Prototype) and provide it to the investor marketplace.
From there, the Team will focus on building an early web version while it investigates the IRA/401k
financial services space and the private equity investors who have been funding it.
6
Business Plan
Business Structure
IFM is structured as a Texas limited liability company (LLC), with Class A (voting) and Class B (nonvoting) Units. The securities offered in this Offering are Class A (voting) membership interests. Class A
owners have the rights to certain distributions according to the provisions specified below under
Investment in Intelligent Fund Management, LLC. There are no Class B Units currently outstanding,
but they may be issued in the future.
Funding Approach and Goals
IFM will sell 20% of the LLC to investors in this first round at an initial stated valuation of $5 M ($1 M
total). The proceeds of this initial “seed” funding will be used to fund Nirvana staff to focus on (a) the
development of the OmniFunds software for sale to the public, (b) developing an initial web site that
incorporates the same algorithms, (c) approaching the IRA/401k space and potentially developing revised
web sites that reflects the knowledge gained.
We believe that we may need additional capital, after this round, to complete the development and
marketing of the product. Future investment may dilute all Members’ percentage ownership interests.
Transfer of Intellectual Property
Nirvana has invested nearly a year in the development of the initial OmniFunds Prototype Application.
As part of the formation of Intelligent Fund Management, LLC, this intellectual property (IP) will be
transferred to IFM for a one-time fee of $500,000. Part of this transaction will include an unlimited
distribution license for VisualTrader, to be used as long as VisualTrader is the platform on which the
OmniFunds software runs. This will provide VisualTrader to end-users that will run the OmniFunds
“Plug-In.”
Development Plan
1. OmniFunds Prototype (Version 1.0 Completed October 2015)
A prototype of the OmniFunds methodology has been completed that uses Nirvana’s VisualTrader
software as the core platform, as described on the previous page. The prototype is enabling the Team to
test various concepts related to ETF switching before establishing the design for the OmniFunds web site.
2. OmniFunds Software Release
The Prototype will be enhanced to realize an Application that is as user-friendly as possible and that runs
simulations as quickly as possible. We intend that this will provide: (a) a good product to sell through
marketing channels, and (b) a more robust test-bed to facilitate faster testing of fund-switching concepts.
The software version may also serve as a way for potential investors to evaluate the concept by running it
on their computer, ahead of the existence of the first OmniFunds web site.
3.
OmniFunds on the Web
The OmniFunds software will enable the Team to determine the best interface and approach to presenting
the System to individuals on the web and on mobile apps. A web site will be developed that selects an
approach that meets their risk profile, and simulates historical performance to provide a benchmark.
Following an exploration of the IRA/401k space, a new version of the web site could be built that is
tailored to the needs of that market.
7
Exit Strategy
We expect IFM to grow subscribers over time and yield a return to investor from this effort. Projections
for this activity are modeled in the Pro Forma.
However, because of the leverage OmniFunds could provide to a financial services firm, IFM will begin
working towards a public funding or acquisition by a financial services firm immediately after the
Software Application is made available to the public. IFM will work to build subscribers for the product
while it educates the financial community about the merits of the approach. As the story matures, IFM
will decide which path provides the greatest return for the company and its investors.
Regulation A+ Public Offering: In July 2015, the SEC approved the final rules for the Regulation A+
exemption. 8 IFM may elect to “Test the Waters” for interest in a Regulation A+ offering according to
the provisions of the exemption. Promotion around the “Test the Waters” campaign could help educate
financial firms about OmniFunds.
If interest in the offering is sufficiently strong, IFM may elect to execute a “mini-IPO” by entering into
the Regulation A+ offering process to raise up to $50 M. In the event such an offering is executed, it
could create an Exit Strategy for investors because they may be permitted to sell their shares as a portion
of such an offering. That opportunity would depend on market conditions, and on restrictions on the
number of shares that may be sold by existing shareholders in such an offering. The Acquisition path,
described next, could still be executed through sale of company stock to an acquiring firm.
Acquisition by a Financial Services or Private Equity firm: We believe that recent fundraising events
for the Robo Advisors imply there is significant investment interest and focus in this space. IFM will
begin approaching companies that sponsor 401k plans and IRAs in addition to other financial services
firms within six months of the Software Application being released. It is possible one of these firms will
want to acquire the company in this early developmental stage.
IFM would seek a sales price that is commensurate with recent fundings in the space. In the event of
such an acquisition, investor positions would share in the net sales proceeds based on their percent
ownership, after payment of creditors and a bonus plan.
Hybrid Path: Assuming we can garner the attention of firms within the financial services space,
another path would be to execute a Regulation A+ offering with the assistance of one of these firms, in
which the firm purchases a substantial portion of the offering. There are many other scenarios, including
partial acquisition or collaboration with one or more of these firms to provide OmniFunds to their
customers (a multiple B2B model). The key for us will be to demonstrate performance in the OmniFunds
concept, initiate the education process with these firms, and evaluate options.
8
For more information on Regulation A+ see Exhibit A
8
Marketing & Revenue Plan
1. Selling Early PC-based Versions
An OmniFunds prototype has been completed, which was successfully sold in October 2015 to Nirvana
customers (generating about $200k in revenue to Nirvana). We plan to sell the finished OmniFunds PCbased application to leads and customers when the OmniFunds Marketing Site is first opened (target:
Summer 2016). The initial price of the OmniFunds Application (including the VisualTrader platform)
will be discounted for these early sales, as well as the Crowd Funding promotion, described next.
2. Crowd Funding as Early Marketing
OmniFunds (operating inside VisualTrader) can already trade an account with several brokers9. When the
application is finished for commercial release, we plan a “Crowd Funding” effort that would be launched
by placing OmniFunds on Crowd Funding web sites. Visitors to these sites will be able get the
OmniFunds Software Application at a deep discount, with the benefits of (a) using it to manage their
accounts today and (b) using the web facility at low or no cost when it is released. Projected revenue
growth from Crowd Funding and Subscriptions are modeled in the Pro Forma.
IFM may elect to “Test the Waters” for a Regulation A+ offering, as provided within the exemption.
Industry articles claim that some companies use this provision to make the investment community aware
of their product. Promotion around a Regulation A+ offering could also serve to attract potential
customers to the OmniFunds web site, at which point they will learn about the OmniFunds Software
Application.
3. Subscriptions of OmniFunds in the Consumer Market
An initial OmniFunds web site will be developed according to the time line in the Pro Forma. The site
will be marketed to investors in the consumer market. It is anticipated that a flat fee of $10 - $100 per
month will be charged to use the platform, but other models may be employed, such as a technology fee
for each order transmitted. It is anticipated that “up-sells” will be made available for the purchase of
advanced algorithms not available at the subscription level.
4. OmniFunds Licensed to Financial Professionals
In a similar process as that described in (4) above, IFM will approach individual Registered Investment
Advisors (RIAs) to see if we can propose/tailor a version of OmniFunds to suit the needs of that market.
Subscription sales to this group are modeled in the Pro Forma, which assumes that we create such a
customized version, which could include additional (as yet undefined) features like multi-account
management and customer tracking (for example).
5. The IFM IRA/401k Business-to-Business Initiative
Nirvana will visit with principals of 401k companies and companies who sponsor IRAs as fiduciaries.
The goal will be to (a) educate these firms on the benefits of OmniFunds to clients, (b) secure their ideas
as to how to make the platform compatible with their other offerings, and (c) potentially license the
technology to these firms so they can present the solution to their clients. Depending on the outcome of
(b) IFM may create a web site version that meets the individual needs of one or more of those companies.
9
Brokers currently supported include Interactive Brokers, MB Trading, GXTrader, and TradeKing,
9
Investment in Intelligent Fund Management, LLC
Nature of the Investment
This Regulation D offering is designed to fund the Development and Marketing activities and other
working capital needs. The securities offered are Class A Units, containing rights specified in the
Company Agreement of Intelligent Fund Management, LLC (the “Company Agreement”).
Investors from this first round will become Class A members of IFM and will be bound by the Company
Agreement. This investment offering will be for up to $1,000,000, priced at $5,000 per unit, with a
minimum purchase of 2 units for $10,000. IFM is asserting a current pre-money value of $5 Million.
Use of Funds
IFM will pay Nirvana $500,000 to acquire the full rights to its existing OmniFunds product and
technology. The OmniFunds product includes the software and switching algorithms. This transfer of
intellectual property to IFM includes a distribution license for VisualTrader, which is listed in the
Professional Services and License Agreement.
IFM will also pay Nirvana consulting fees amounting to substantially all of the proceeds of this
Regulation D offering plus certain ongoing consulting fees. These are specified in the Services
Agreement. The fees are subject to change from time to time by agreement between Nirvana and IFM.
A portion of the offering proceeds also may be used for general working capital purposes.
Conflicts of Interest
Ed Downs owns and controls Nirvana Systems, Inc., and receives a salary from Nirvana Systems, Inc.
Substantially all of the proceeds of this offering will be used to make payments to Nirvana Systems, Inc.,
in order to purchase intellectual property rights, and to pay Nirvana Systems, Inc. to provide services to
develop the OmniFunds product. The fees to be paid under the services agreement, and the purchase price
for the technology as between IFM and Nirvana, were determined by Ed Downs. We have not received
an independent appraisal of the valuation of the technology, or the valuation of IFM.
Certain employees of Nirvana Systems, Inc. also will provide services to IFM. They are paid by Nirvana.
The allocation of these costs has been determined by Ed Downs.
Certain employees of Nirvana may participate in the Bonus Plan that will pay a portion of the proceeds of
the sale of IFM to participating employees.
Ownership and Bonus Plan
In order to incentivize key staff members, an Employee Bonus has been defined as 15% of the net
proceeds in the event of a sale. This will reduce the proceeds payable to the Members, including the
holders of the Class A Units offered in this offering. According to the Bonus Plan, employees
participating must be employed by IFM or an affiliated company of IFM (such as Nirvana) at the liquidity
event in order to realize these proceeds. Post-Offering ownership interests in IFM, and allocation of the
proceeds of the sale, after payment to creditors, will be as follows (assuming the offering is fully
subscribed). If additional Units are issued in the future, these percentages will decrease, including the
15% of the Bonus Pool.
10
The table on the left shows the number of units owned now and at the close of this offering (assuming all
200 units are sold). The table on the right shows allocation at time of sale, including the effect of the
Bonus Pool. The Class B Units are shown as zero, since there are none currently owned or offered for
sale. There may be Class B Units issued in the future.
OWNERSHIP in the IFM LLC Pre-Money
Post-Money
Units
800
Percent
100.0%
Units
800
Percent
80.0%
Class A, new
0
0.0%
200
20.0%
Class B
0
0.0%
0
0.0%
800
100.0%
1000
100.0%
Class A
ALLOCATION OF NET PROCEEDS AT TIME OF SALE Pre-Money
Units
800
Percent
100.0%
Units
800
Percent
68.0%
Class A, new
0
0.0%
200
17.0%
Class B
0
0.0%
0
0.0%
Class A
Bonus Pool
Total
Post-Money
Total
0
0.0%
177
15.0%
800
100.0%
1177
100.0%
Sources of Return to the Investor
An investment in IFM through this offering includes several potential paths for return of principal and
additional yield on the investment.
1) Revenue from Subscriptions, Sales, and Licenses of OmniFunds Technology. IFM will seek to
grow subscriptions and sales of OmniFunds in the consumer market, and will also seek to license the
technology to financial professionals. Investors will participate in IFM profits, if any, according to
the terms of the IFM Company Agreement.
The Company Agreement provides that “Available Cash” will be distributed to Members (including
Class A and, if Class B Units are later issued, Class B Members) according to their pro-rata
ownership interests, quarterly. “Available Cash” means the cash balance of the Company from time
to time after the payment of, or provision for the payment of, all of the Company’s obligations then
due and after the establishment of such reserves as the managers may think appropriate for all other
debts and expense of the Company, and expressly including payments to Nirvana.
The Company Agreement is subject to amendment in accordance with its terms and Texas law. The
Company has not made distributions of Available Cash to investors to date, and its projections do not
include cash distributions.
2) Proceeds from Merger or Acquisition. The technology and company may become an acquisition or
merger candidate for a larger firm. In the event of acquisition, the investor will realize his pro-rata
share of net proceeds in cash or security equivalents, based on his or her percentage position at the
time the acquisition is made, after payment of the Bonus Plan. See Ownership and Bonus Plan above
for Post-Acquisition Distribution percentages. Percentages may be diluted if the Company raises
additional funds through the issuance of additional units in the future.
3) Shares from a Regulation A+ Offering. IFM may elect to “Test the Waters” on a potential
Regulation A+ offering as part of its campaign to make potential investors (and acquiring companies)
aware of its story. In the event sufficient interest exists for a Regulation A+ offering and IFM were
to pursue such an offering, current owners of IFM may be able to include a portion of their shares in
that offering, subject to market conditions and restrictions imposes by Regulation A+ and any
applicable state securities laws.
11
Positive Factors
Nirvana and IFM believe there are several factors that will contribute to the successful development of the
OmniFunds product.
1) Experience, Products, and Customer Base – Nirvana has over 25 years of experience in the
development of investment analysis software, and has an estimated active customer base of
approximately 5,000 users.10
2) Completed Prototype – A prototype of the OmniFunds concept was completed and sold to Nirvana
customers from July-September 2015. These sales seem to indicate the demand for a fund-switching
product like OmniFunds is there, especially given the fact that the first version was a prototype, and
most of the development of the prototype was yet to be completed. (Note: The prototype has been
completed and delivered since these sales were made.)
3) MB Trading & TradeKing Agreements – Omni Traders International successfully built and placed
OmniVest with two mainstream brokers – MB Trading and TradeKing Securities Group. Each
brokers’ commitment to the OmniVest product demonstrates their belief that OmniVest can serve a
role in the development of revenues for their brokerages. The existence of this important relationship
adds credibility to the Company’s ability to execute its development plans.
Risk Disclosures
An investment in IFM is subject to high risk and you may lose your entire investment, as the technology
and application of technology are relatively new. Risks include but are not limited to:
1) Development – IFM has scheduled a number of key developments it believes are important to
approaching the general market. As with all software development, there is risk of product delays or
problems which could lead to delays. The indicated timelines in the Pro Forma are estimates based
on the experience of the Company with its development staff.
2) Marketing – OmniFunds has been released to the Nirvana customer base, but it has not yet been
released to the general public. It is difficult to project sales penetration to customers outside
Nirvana’s loyal customer base.
3) Marketing OmniFunds to the 401k marketplace. One goal in the IFM business plan is to
approach the 401k markets based on the recent announcement by Betterment cited on page 5. At this
point, IFM has not performed this research or approached these companies (planned after the initial
developments have been completed and the web site can be demonstrated.) Therefore, IFM cannot
guarantee that these companies will take an interest in OmniFunds, and does yet not know if
regulations would block the adoption of OmniFunds by these firms.
4) Future Returns – The OmniFunds concept is new. While we believe that the design approach to the
product is sound and will yield an investment advantage over other methods, a track record has not
yet been generated and future performance remains unknown.
5) Competition. There are many competitors in the robo-advisor market, both startups, some of which
are very well funded, and much larger, well-established entities, such as Wealthfront and Betterment.
6) Trading Liquidity – At this point it is unknown how much capital can be effectively managed by the
OmniFunds System. It is anticipated that if liquidity becomes a problem, execution controls can be
added, but this has not as yet been determined or designed.
10
Customer count is estimated based on prior 3 years of upgrade and new sales of OmniTrader & VisualTrader.
12
7) System Errors – Every effort is being made to provide redundancy to guard against errors and
omissions. However, with all computer hardware, servers, internet connections and trading systems,
failures can occur that cause a loss in a user’s account. All users are required to sign liability waivers
before they can use OmniFunds, but such waivers may not be sufficient to shield IFM from all
possible events.
8) Regulatory Environment – Based on industry precedent related to investor-direction of automated
trading systems, IFM believes it is exempt from federal regulations for Registered Investment
Advisors or Fund Managers. However, there can be no guarantee that a regulation will not be
applied at some point. In such an event, IFM would take the actions required by the regulating body,
but this could delay or damage IFM’s ability to license the technology. In addition, the “robo
advisor” companies have drawn some regulatory scrutiny as the SEC and FINRA attempt to
determine how to regulate these new services. The SEC is currently considering its regulatory
approach.11
9) Insufficient Offering Subscription – If this offering is not fully subscribed, we may not have
sufficient resources to complete our Business Plan or to continue operations. There is no floor
amount of subscriptions. The Company plans to use the proceeds of the offering as they are received,
rather than to wait until a minimum amount of the offering is sold.
10) Potential for Dilution – It may be necessary to raise funds in the future, which would result in a
dilution of your percentage ownership of the Company.
11)
Nirvana Systems – In March of 2015, Nirvana entered into a contract with TradeKing Media to
provide a private label version of OmniVest (now called “AutoVest”) to 500,000 TradeKing Clients.
However, as a result of various delays at TradeKing (including the acquisition of MB Trading in
2015), we have so far only marketed the product to 4% of this base. At this time (February 2016)
TradeKing is investing resources in web advertising deliverables for AutoVest, and because of this
activity and the new marketing schedule from TradeKing, we believe marketing of AutoVest will
resume in Q1 or Q2. This Regulation “D” offering is being executed so Nirvana can move forward
on the OmniFunds agenda. Nirvana’s business model is substantially dependent on one or more of
these revenue sources (AutoVest, OmniVest, OmniFunds, and sales of Nirvana products) maturing in
the first half of 2016. Substantially all of proceeds of this offering will flow to Nirvana under the
Services Agreement with IFM, so that it may complete various developments while at the same time
funding the infrastructure required to do so. If net revenue to Nirvana from all sources (AutoVest,
OmniVest, OmniFunds, sales of Nirvana product sales, etc.) is insufficient, Nirvana will need to
reduce expenses, which could impact IFM’s ability to continue operation.
12) Market Research – IFM has identified two markets that are included in the Pro Forma and Time
Line – the Registered Investment Advisor (RIA) market and the Self-Directed IRA/401k space.
While IFM believes these areas of the financial industry are excellent target markets to pursue, actual
interviews with firms in this market are not planned until IFM has a product that can be
demonstrated. Until that market research is performed, acceptance of the technology within these
market segments is unknown and may not result in actual product sales, investment, or acquisition by
one of these firms or other investment companies.
13) Government Regulation of the Robo Advisors. The SEC and FINRA recently issued an “Investor
Alert” advising investors to exercise caution with respect to the use of the Robo Advisors to manage
their funds. While this bulletin was advisory in nature as opposed to regulatory, the potential exists
for a governmental organization to begin imposing additional regulations in this space. It is unknown
how such regulations, if issued, would affect the IFM business plan or exit strategy.
11
See, for example, remarks of Commissioner Kara M. Stein in a speech at Harvard Law School on Nov. 9, 2015,
“Riding the Wave: Technology, Innovation, and Competition, Remarks at Harvard Law School’s Fidelity Guest
Lecture Series.”
13
14) Additional Risk Factors. – Please also see certain other risk factors in the Subscription Agreement,
and associated with the Pro Forma projections.
14
Exhibit A
Regulation A+ Public Offering
The Jobs Act ushered in several new exemptions to make it easier for small companies to raise capital. In
2015 a modification to Regulation A, called Regulation A+ was issued.
Information on Regulation A+ is being included here so potential investors are aware that this investor
exit strategy is being considered. The following article excerpt is not a complete description of
Regulation A+. Those interested in the exemption should read the entire rule.12
“Regulation A+: Final Rules Offer Important Capital Raising Alternatives” 13 “On March 25, 2015, the Securities and Exchange Commission voted unanimously to adopt final rules to
implement the rulemaking mandate of Title IV of the JOBS Act by adopting amendments to Reg A. “
“The final rules create two tiers: Tier 1 for smaller offerings raising up to $20 million in any 12-month
period, and Tier 2 for offerings raising up to $50 million. The new rules also make the exemption
available, subject to limitations on the amount, for the sale of securities by existing stockholders. “
“The new rules modernize the existing framework under Regulation A by, among other things, requiring
that disclosure documents be filed on EDGAR, allowing an issuer to make a confidential submission with
the SEC, permitting certain test-the-waters communications, and disqualifying bad actors. The final rules
impose different disclosure requirements for Tier 1 and Tier 2 offerings.” [emphasis added]
Additional information can be found in other recent articles.14
If IFM can demonstrate value in the financial services marketplace, such assessment may lead us to
consider one of the newer capital raising strategies now available to small businesses, including, for
example, the issuance of a Regulation 506(c) offering, which permits sales to accredited investors using
public solicitation and advertising (but still results in restricted securities), outright or partial sale to firm
in the financial services space, or a “mini-IPO” through Regulation A+.
A Regulation A+ offering may make sense in our business because our clients are familiar with trading
stocks, and may desire to hold a position in a company that showcases our technology. Importantly, the
new exemption includes a test the waters provision which could be used to measure interest ahead of a
Regulation A+ offering, by surveying customers and leads.
These are some of the capital raising strategies that we may consider. Whether we are able to
successfully use them, and on what terms, will depend on our success in creating value in our company,
and on market conditions at the time that we seek to raise capital.
12
13
SEC Announcement on Regulation A+: https://www.sec.gov/news/pressrelease/2015-49.html http://www.mofo.com/~/media/Files/ClientAlert/2015/03/150326RegulationA.pdf
14
Recent Articles:
a. http://www.businesslawpost.com/2015/06/new-regulation-will-it-get-a-from.html
b. http://www.forbes.com/sites/mraneri/2015/05/26/testing-the-waters-and-filing-a-regulation-a-offering-with-thesec/3/#3cd404b4f4e7
c. http://documents.jdsupra.com/ab294568-5572-4d4a-98e2-0e74132b0ae4.pdf
15
Pro Forma and Projected Time Line
ASSUMPTIONS:
Monthly Marketing Increments
Months 2 ‐ 5, 10 ‐ 12
$10,000
Months 6 ‐ 9
$15,000
Software Sales (start in month 2)
Web Site Subs (start in month 6)
DIRECT MAIL
Active Investor Population
CPC WEB ADVERTISING & TELEVISION
2,000,000
$295
$2.00
20%
15%
Sales Price
Average cost per piece (DM)
Lead Response
Conversion Rate
First Year (months)
Software Sales (crowd funding)
Web Site Subs
Software Sales to Web Users
Up‐sells of Advanced Algos
Placement w RIAs
Total Sales
Services Fee
Marketing Budget
Net Revenue
Nirvana Participation (3)
Distributable to Investors (4)
1
0
0
0
0
0
0
Passive Investor Population (1) Average Monthly Fee:
Average cost per impression
Lead Response
Conversion rate
Up‐Sells of Advanced Algorithms
Sales to Existing Web Subscribers
90,000,000 Population: All Web Subscribers
$60.00 Sales Price
$0.025 Cost of Sales
0.50% Lead Response
15% Conversion Rate
2
44,250
3
88,500
4
132,750
5
177,000
0
6
177,000
27,000
7
0
153,000
13,275
67,500
44,250
(125,000)
(10,000)
(90,750)
0
0
88,500
(125,000)
(20,000)
(56,500)
0
0
132,750
(125,000)
(30,000)
(22,250)
0
0
177,000
(125,000)
(40,000)
12,000
(1,800)
10,200
204,000
(125,000)
(55,000)
24,000
(3,600)
20,400
233,775
(125,000)
(70,000)
38,775
(5,816)
32,959
8
0
306,000
61,950
315,000
0
682,950
(125,000)
(85,000)
472,950
(70,943)
402,008
Time Line Year 1
Placement with RIAs (start in 8th)
DIRECT MAIL
Advisor Population (2) $3,000.00 Clients | Cost
$0.000 Average cost per piece (DM)
NA Lead Response
$10.00
$2.00
10%
15%
5% Conversion Rate
9
0
396,000
75,225
382,500
187,500
1,041,225
(125,000)
(100,000)
816,225
(122,434)
693,791
10
0
495,000
44,250
225,000
393,750
1,158,000
(125,000)
(110,000)
923,000
(138,450)
784,550
Estimated
Estimated
Start Up
Prototype Sales
Application Development
RIA Professional Research
CrowdFunding
OmniFunds Web Site #1
Funding Round #2
Approach 401k, IRA firms
OmniFunds Web Site #2
285,000
50
11
0
603,000
48,675
247,500
618,750
1,517,925
(125,000)
(120,000)
1,272,925
(190,939)
1,081,986
Year 1
Year 2
Year 3
12
0
720,000
53,100
270,000
862,500
1,905,600
(125,000)
(130,000)
1,650,600
(247,590)
1,403,010
1,403,010
19,807,200
29,710,800
Seed Funding
Continued sales of Prototype to Nirvana Customers
Enhance Prototype: Create a "Release" version.
Market the "Release" version (software).
Research RIA market
Crowdfunding (Prototype II)
Specification
Web Site Enhancements (RIA)
Sell into RIA Market (pending outcome of investigation & dev.)
Crowdfunding shifts to the "Release" version (software)
Web Site Development
Market the "web" version (Web Site #1)
Potential 506c Reg D Offering
Financial Services space research (players, contacts, generate list)
Approach identified 401k and IRA firms
Specification
(1) Passive Investor Population: An estimated 90 million people owned mutual funds in mid‐2014 in all age and income groups, bought and sold mutual funds through four principal sources: investment professionals, employer‐sponsored retirement plans, fund companies directly, and fund supermarkets. Investment Company Fact Book. http://www.icifactbook.org/fb_ch6.html
(2) Registered Investment Advisors: There were roughly 285,000 financial advisers in 2014. Reuters.
http://www.reuters.com/article/wealth‐cerulli‐advisor‐headcount‐idUSL1N0VL23920150211 (3) Nirvana Participation: 15% of Intelligent Fund Management LLC Net Revenue above $125,000, as defined in the Professional Services and License Agreement.
(4) Distributable to Investors: Actual distributions will be made in accordance with the terms of the LLC Agreement.
Web Site Development per 401k research
Potential Early Equity Firm Cautionary Note Regarding Forward-Looking Statements/Pursuant to the U.S. Private
Securities Litigation Reform Act of 1995
FORECASTED AND ESTIMATED FINANCIAL RESULTS SET FORTH IN THE
PRO FORMA ARE BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE
INHERENTLY UNCERTAIN AND, THOUGH CONSIDERED REASONABLE BY THE
MANAGER, ARE SUBJECT TO SIGNFICANT BUSINESS, TECHNICAL, ECONOMIC,
AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE
DIFFICULT TO PREDICT AND MANY OF WHICH ARE BEYOND THE CONTROL OF
THE MANAGER AND THE COMPANY. THE PROJECTIONS ARE BASED ON
INFORMATION AVAILABLE TO THE MANAGER AS OF JANUARY, 2014, AND THE
MANAGER IS UNDER NO OBLIGATION TO UPDATE OR SUPPLEMENT SUCH
PROEJCTIONS. ACCORDINGLY, THERE CAN BE NO ASSURANCES THAT THE
FORECASTED RESULTS WILL BE REALIZED OR THAT ACTUAL RESULTS WILL NOT
BE SIGNIFIANTLY LOWER OR HIGHER THAN AS SET FORTH HEREIN.
This private placement memorandum, including the pro-forma financial projections,
contains, and our officers and representatives may from time to time make, "forward-looking
statements" within the meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as:
“believes,” “anticipates,” “expects,” “intends,” “may,” “likely,” “plan,” “goal,” “should,”
“target,” “could,” “will,” and similar references to future periods. Examples of forward-looking
statements include, among others, statements we make regarding:

Expected operating results, such as future sales, revenue growth and earnings.

Strategy for customer retention, growth, product development, market position,
financial results and reserves.

Strategy for risk management.

Expected new relationships with brokers or resellers.

Required regulatory approvals.
Forward-looking statements are neither historical facts nor assurances of future
performance. Instead, they are based only on our current beliefs, expectations and assumptions
regarding the future of our business, future plans and strategies, projections, anticipated events
and trends, the economy and other future conditions. Because forward-looking statements relate
to the future, they are subject to inherent uncertainties, risks and changes in circumstances that
are difficult to predict and many of which are outside of our control. Our actual results and
financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these forward-looking statements. Important factors that
could cause our actual results and financial condition to differ materially from those indicated in
the forward-looking statements include, among others, the following:

The effectiveness of our marketing campaigns in acquiring new customers.

Changes in customer demand.

The results that our customers actually obtain in trading with our software.

Projected uptake on Crowd Funding sites.

The extent to which we are successful in gaining new long-term relationships with
customers or retaining existing ones and the level of service failures that could
lead customers to use competitors' services.

The extent to which we are successful in gaining new long-term relationships and
agreements with additional business partners and/or brokers and the level of
revenue anticipated from those agreements.

The adequacy of our cash flow and earnings and other conditions which may
affect our ability to fund the business during the period until the company’s
products are profitable, or to distribute Available Cash.

Developments and changes in laws and regulations, including increased
regulation related to investor-direction of automated trading systems, and
regulation of brokers’ sales of products to clients.

Disruptions to our technology network including computer systems and software,
as well as natural events such as severe weather, fires, floods and earthquakes or
man-made or other disruptions of our operating systems, structures or equipment.

Such other factors as discussed in the Subscription Agreement and the Business
Summary.
Any forward-looking statement made by us in this pro forma and the accompanying
private placement memorandum is based only on information currently available to us and
speaks only as of the date on which it is made. We undertake no obligation to publicly update
any forward-looking statement, whether written or oral, that may be made from time to time,
whether as a result of new information, future developments or otherwise.
2