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An old adage in the VC business holds that the best startups are built during bear markets. While the post-boom downturn didn't kill off every flimsy venture, it did impose frugality on many young outfits. "We saw a lot of companies forced to spend less money to acquire more revenue," says Kevin Harvey, a general partner at Benchmark Capital in Menlo Park, Calif. With fewer competitors, smart startups could quickly grab big chunks of their respective markets.

That's what happened at TellMe. While several competitors either folded or were acquired, the company stayed focused on winning large corporate clients that use its voice software for customer service. TellMe turned profitable last year after roughly doubling revenues in each of the last two years, and is on track to post $100 million in sales this year. "They're going to queue the company up as a 2006 IPO and try to create a Google-like energy behind it," says one venture capitalist familiar with TellMe. McCue says the company is in a position to launch an IPO at any time but hasn't set a date.

Also mum about its plans is Vonage Holdings Corp. Founded in 2001, the Edison (N.J.) provider of Internet phone service has raised $210 million and last year racked up about $100 million in revenue. It has spent enough on marketing in a bid to make itself a household name, and several VCs say it will go public this year or next. But critics complain that while its ads attract new customers, it doesn't retain as many as it should.