Tellme's Naughty Schoolboy

Angus Davis hacked his school's phones and never quite found time for college, but none of that is chilling the Street's enthusiasm for what is likely to be a very hot IPO

by Olga Kharif

It started with a prank. While attending the prestigious Phillips Academy Andover, Angus Davis hacked into the high school's phone system, letting fellow students make free long-distance calls. By the time the hoax was detected five months later, half the school was making free calls to as far away as Hong Kong and Andover racked up thousands of dollars in bills from kids dialing 1-900 lines.

That wasn't the first offence, and it ended up getting Davis suspended. The episode was especially embarrassing since his dad and grandfather graduated from Andover (before attending Yale and Harvard Law).

A decade later, Davis is still tinkering with phones, but with considerably better results. After a stint at Netscape, Davis co-founded Tellme, whose technology helps users search for information using phones. launched in 1999, Tellme has achieved profitability and generates more than $100 million in annual sales.

SOUND PROSPECTS.

Although Tellme hasn't announced plans for a share sale, the Mountain View, Calif.-based company is considered a likely contender for an initial public offering as early as this year (see BW Online, 9/12/05, "Tech IPOs are Clicking Again". Lise Buyer, the former investment banker who helped shepherd Google (GOOG) through its 2004 IPO, joined Tellme last year. Morgan Stanley's Mary "Queen of the Net" Meeker last year told BusinessWeek that Tellme is "one of the companies we're most interested in."

Why all the buzz? Tellme's software and network help users search for information via wireline and wireless phones. Its technology powers automated voice-directory assistance on more than 1 billion calls a year placed via the wireless networks operated by Verizon (VZ) and Cingular.

Tellme's speech-recognition technology helps E*Trade (ET) customers navigate voice menus for stock quotes and automates American Airlines baggage claims. Want ringtones? Movie tickets? Tellme helps you do that too -- all over the phone. Tellme "has matured and demonstrated its ability to handle large accounts successfully," says Forrester Research analyst Elizabeth Herrell.

ASLEEP AT THE SWITCH.

And it's happened pretty quickly. After high school, Davis took what he thought would be a year off before college. In time he got a marketing internship at Netscape, where he was soon hired as a product manager, becoming the Web browser's youngest full-time employee. Before long, he was heading a 25-person team. His jobs included prototyping browser technology and tackling the merger with America Online (TWX) in 1999. There were a lot of Mountain Dew-fueled weekends, Davis says of his Netscape days. "It was good preparation for Tellme," he says.

Davis and his former boss at Netscape, Mike McCue, co-founded Tellme in the midst of Silicon Valley's technology boom, opening for business in a 3,000-square-foot rented body shop in Palo Alto, Calif. The entrepreneurial duo built bunk beds above their desks and worked around the clock. Amid the dot-com bust, the company underwent painful layoffs and, like many startups of the era, shifted its business model.

But unlike so many peers, Tellme survived. And over the years, Davis and McCue managed to raise $250 million in four rounds of equity funding from the likes of former Netscape CEO Jim Barksdale and reknowned venture capital firms Kleiner Perkins Caufield & Byers and Benchmark Capital.

ASK AND RECEIVE.

Davis has made an impression on customers as well. "When I first met him, I was shocked at how young he was," says Joel Horton, an executive director at Verizon. "But I talked with him on the phone and e-mail beforehand, and the impression was, this is a person with serious thoughts and skills."

To be sure, Tellme doesn't have the market to itself. Competitors include BeVocal, Intervoice, and Voxeo.