Getting Animated

When it first started developing a facial capture technology for film, TV and video games animation, Artem Digital was well aware that it was operating in a cyclical industry. The games sector was gearing up for a new generation of consoles led by the likes of the Playstation 3 - a transition that promised a short-term downturn before the products were released, followed by a huge opportunity to exploit new demand for high-quality graphics. What the company didn't anticipate, however, was that the downturn would be prolonged by two critical factors: lengthy delays to the new games platforms, and changes to the tax regime that pulled the carpet from under the UK film industry.

 Launched in the summer of 2001, Artem Digital initially specialised in motion capture technologies. Wearing lycra suits with reflective round marker similar to small ping pong balls, actors play out specific actions that animators are seeking to create for their 3D characters. Their movements are picked up by a network of cameras that triangulate the markers to map each body movement, creating a three-dimensional 'skeleton' which is used as the basis for the animation. Artem Digital's expertise is in capturing and processing this data.

“With the benefit of hindsight, bringing in a non-executive finance director two years ago might have been helpful."

Over the last two and a half years, the company has also turned its attention to tackling facial expressions in people and animals. While traditional motion capture techniques work well for data that can be represented by a skeleton, they're less suitable for the face, where meaning is transmitted through subtle movements on the skin surface. This kind of animation expertise has long been in demand in the film industry, and with their new generation of products, video games companies have also been keen to depict realistic characters showing emotion.

In fact, the games sector presents unique challenges because it requires two types of graphics. Some video sequences are pre-rendered and play like a DVD, with high production values, but during the in-game sequences everything is processed in real-time and the games console can only cope with limited information, so the graphics component needs to be reduced. While some development work is still being completed, Artem Digital has now built its own high-resolution facial scanning technology and put it to use in three or four early projects.

Seeking urgent funding

Richard Dikstra, one of the co-founders of Artem Digital, says the company embarked on the facial scanning project in the full knowledge that it would require additional financing, both to fund development and to bridge the inevitable slowdown before the next-generation games platforms were launched. Delays to the new platforms upped the stakes, however - as recently as September 2006, the UK launch of Playstation 3 was put back again to spring 2007. At the same time, the film industry took a hit when specialist tax law was suddenly changed because of government fears that the UK regime was being abused.

This put the company under significant pressure, and it began to explore new funding options in 2004. In September of that year, it applied for a ₤200,000 loan under the Small Firms Loan Guarantee scheme, a programme backed by the Department of Trade and Industry that provides unsecured loans to qualifying businesses. Those funds were released the following spring.

Later that year, Artem Digital approached g2i, attending a seminar in the autumn of 2005 and presenting to potential investors in January 2006. According to Dikstra, the response was positive - but as an established business with fixed overheads, its cash needs were getting urgent. Unwilling to wait for new investors to go through the necessary pre-investment steps, it chose instead to strike a deal with an existing investor, Artem Ltd, a well-known special effects producer that had licensed its name to Dikstra's operation when it first started up. Under the new deal - a mix of equity and a long-term loan facility - the company has now reached its funding target of ₤375,000.

Dikstra says the g2i experience was very positive - not only was the course it attended useful from a funding perspective, he says, it was also helpful to be put in touch with other people through the network. In addition, the company is keeping the door open to the potential investors who initially showed interest, aware that there may be other initiatives it wants to pursue in the future that require additional funding.

Lessons learned

Dikstra acknowledges that the funding pressure caused some problems - not only did staffing levels have to be adjusted, but it also had to skimp on some business development. “We probably should have been spending a bit more on marketing and PR at an early stage - although if we had, we would probably have run into the buffers earlier,” he says. “We've failed to make the splash we should have. But we're now starting to gear up to do more marketing - it's a relatively small industry, and we've got to get in front of the right people at the right time and show that the product works.” Dikstra would have liked to have cut back on property costs as well, but like many small businesses Artem Digital found itself locked into a long lease.

Looking back, Dikstra also believes that the company could have benefited from bringing someone on board to help with the financing. “With the benefit of hindsight, bringing in a non-executive finance director two years ago might have been helpful. Our business has a relatively small number of customers and ongoing projects at any one time, so it's relatively easy to manage. But to bring in someone more involved in raising finance might have been appropriate.”

Despite those difficulties, however, the company is now involved in some high-profile projects, working with a major games developer in Japan, as well as with Electronic Arts on the next Harry Potter game. It also expects to break into profit early in the new year, a significant achievement for a company faced with such an unexpected combination of market forces. “One thing we've shown is that we've produced technology that people want, and we've succeeded in keeping the company going under some fairly difficult times,” concludes Dikstra. “Are we optimistic? We're reasonably optimistic, but with a healthy degree of scepticism. And we're very enthusiastic, because we know the market is definitely moving towards what we have.”

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