Up & Comers

What does it take to get a high-tech firm off the ground? At Applied Science Fiction, a dreamer, a doer and a schmoozer.

Ménage à trois

By Mary Summers

YOUNG COMPANIES are full of entrepreneurial odd couples. But few can match the trio at Austin, Tex.-based Applied Science Fiction, which develops digital imaging technology to remove defects--dust, hair, scratches and the like--from scanned photo negatives. So different are Albert Edgar, chief scientist; Mark Urdahl, chief executive; and Sada Cumber, vice president in charge of strategic relations, that it's hard to imagine them at the same trade show, much less in the same lab. Still, "without one of those guys," says Kent Fuka--a partner at CenterPoint Ventures, which put up $4 million for some 10% of ASF--"the company wouldn't have gotten off the ground."

ASF embeds Image Correction Enhancement (ICE) software in scanning hardware and software. Most scanners read and digitize images as three colors or channels--red, green and blue. ASF's system discerns an additional black channel, on which surface imperfections are etched, and automatically erases them. The technology is used in Nikon's SuperCoolscan and by many photo processors that rely on Kodak's digital minilabs. In a few years ICE-equipped scanners will be bundled with PCs, eliminating hours of tedious photo-editing work.

The technology is Edgar's baby--and his interest has always been esthetic, not commercial. "I want to create the perfect image," says the soft-spoken engineer with his duct-taped glasses and unruly hair. "You don't want to just see the wetness of the grass--you want to feel it." That ICE has come so far is a result of the profound disinterest of IBM, where Edgar, 51, was an engineer. He and his team spent four years asking for funds; IBM didn't see the potential.

In October 1994 a frustrated Edgar contacted Urdahl, a hard-driving venture manager at IBM. "This guy calls me up out of the blue and starts talking about all this weird stuff," Urdahl recalls. "I said, 'What do you do for a day job?'"

But he was intrigued, and sketched out a strategy. "I saw an opportunity to develop a business plan for a vast market and to create immense value," says Urdahl, 39. He talked Edgar out of producing a high-end scanner--they couldn't compete there--and into licensing deals with the Nikons and Hewlett-Packards of the world.

First, they had to wrestle the patents away from IBM. Urdahl devoted nine months to secure a fee-free cross-licensing deal that gave IBM rights for a small percentage of revenues. In late 1995 Urdahl, Edgar and a pack of engineers began quitting IBM, and holed up at a low-rent incubator in Austin. They had a promising technology, but no industry knowledge--and no money. Urdahl routinely dismissed interested venture capitalists because they wanted too much equity or didn't understand the technology. More than once the company was down to its last few dollars. "We went through five times more discussions with them to establish a deal than we ordinarily do," said CenterPoint's Fuka. "It was exhausting."

What ASF now needed was someone who could neutralize Urdahl's pit-bull style. One day they found him in the lobby of the incubator: Sada Cumber--a 44-year-old Pakistani-born Photoshop operator--could charm a cobra; on weekends he helps newly arrived Southeast Asians assimilate in Houston communities.

He also had a card file full of industry contacts. "I was able to call up Nikon and say, 'We're coming,'" Cumber recalls. In that early sales call with Urdahl, he laughs, "We were like good cop, bad cop." Nikon signed a ten-year licensing agreement giving ASF some $4 million in royalties each year. "The Kodak door was open," says Cumber. "I knew their director of marketing and sales." Kodak signed a similar deal.

ASF will probably lose several million dollars on an estimated $5 million in revenues this year. Losses will continue for some time because of development costs. But there's money in the bank--thanks to a recent $31.5 million raised in part by Sevin Rosen--and enormous potential for growth. Sales of scanners will jump to 18.5 million in 2002, from 400,000 in 1990, predicts InfoTrends. More than 1 million digital cameras were bought last year; that market is surging 60% annually, reports Hewlett-Packard. Meantime, look for a new line of products to enhance colors and reduce graininess from ASF and dozens more licensing deals, each worth up to $6 million a year.

Can the trio of such disparate talents stay together? "We are like soul brothers," says Cumber.

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