(Business 2.0) - You've come up with a world-changing idea, or at least an industry-changing idea. You have a business plan. Maybe you've even written some code or built a prototype. Now all you need is those few thousand bucks--or a few tens or hundreds of thousands of bucks--to get your new venture up and running. All that stands between you and your startup, in other words, is an angel.

Typically among the earliest sources of funding for would-be entrepreneurs, angels are individual investors who provide fledgling companies with seed capital--anywhere from a few thousand dollars to as much as $1 million. Angels play a critical role by investing in companies that venture capitalists consider too unproven and risky. In fact, during 2004 only 3,000 new firms were funded by VCs, while an estimated 48,000 businesses received startup capital from people who identify themselves as angel investors.

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Throw in money from friends and family, and the number of entrepreneurs touched by angels soars even higher. The most famous angel investment in recent years was probably the $100,000 check that Sun Microsystems co-founder Andy Bechtolsheim made out to Google (Research) after watching Larry Page and Sergey Brin demonstrate their search-engine software. The check was uncashable at first--as a legal entity, Google didn't exist yet--but once the company's incorporation papers were completed and filed, the money enabled Page and Brin to move out of their dorm rooms and into the marketplace. Likewise, Amazon (Research).com, Apple (Research), the Body Shop (Research), Kinko's, and Starbucks (Research) all got their starts with the help of angel investors, as did current rising stars such as Digg, LinkedIn, and Simply Hired.

So where is your angel? Let these divine directives guide your search.

When a young company has more optimism than income, friends and family are often the first to brandish their checkbooks. Relatives and old pals know you, and they (hopefully) believe in you, so their contributions are really an investment in you. Therein lies the danger: You don't want to spend the next 20 years listening to Uncle Irving grumble about how you squandered his $10,000 on some harebrained scheme back in 2006.

So don't take personal connections for granted: Treat friends and family like business partners. For instance, decide up front whether their money will be a loan--payable by a certain date with interest--or an equity stake, meaning they'll own a portion of your new company. Set expectations accordingly, bring in a lawyer to draft an agreement, and make sure it includes provisions such as liquidity preference (how much an angel gets before other shareholders if the company is sold) and other standard terms like a guaranteed option to invest in future rounds. Tip: Since VCs have a nasty habit of wiping out the holdings of unsophisticated angels, define any equity stakes as a percentage of whatever valuation the company receives after securing future rounds of funding.

Friends and family will also feel less vulnerable if you invest your own savings. By the time Carolina Braunschweig accepted a $15,000 loan from her father, she had bootstrapped CMB Sweets, a jam and preserves business she founded in 2004, through sales and side jobs. She treats her dad as a board member. "I give him regular updates on sales volumes, who reordered, and what new accounts my reps have landed," she says. "But I didn't accept any money until I had built the business with my own resources."

Strangers are a different story. Even though they're seed-stage investors, angels who didn't know you in diapers usually want more than a well-thumbed business plan before they pony up cash. For a technology company, a working prototype is ideal angel bait. Retail or service ventures can provide references from potential customers who will confirm that, yes, they would buy what you plan to offer and pay the price you plan to charge.

Peter Cooper, founder of FeedDigest, came up with an ingenious way to gather thousands of such testimonials. A resident of Louth, England--a place so out of the loop that he calls it "the Kansas of Britain"--Cooper launched his online application, which automatically displays news, blog posts, and other content on a single website, in 2004. Once FeedDigest began attracting attention, Cooper put up a PayPal button and asked users to donate money to help him succeed. By early 2005 his customers had kicked in almost $5,000--about enough to cover his costs. But more important, the donations drew the attention of Kelly Smith and Adrian Hanauer, owners of a Seattle-based angel shop called Curious Office Partners. After watching FeedDigest gain traction, Smith contacted Cooper out of the blue and eventually invested about $100,000. "He had thousands of users that helped him keep his project going," Smith says. "I was on the lookout for a company like his."

Angels often gather in groups. By pooling resources, these organizations can invest more in deserving startups--sometimes in excess of $1 million. They usually make investment decisions based on membership votes, so it's important to have an ally on the inside to represent you. An archangel, if you will.

To draft a champion for your cause, read the member biographies on the group's website to find the best match, then network your butt off to get face time. If you can earn an archangel's confidence, he or she will invite you to pitch the group, and you'll have an edge in the voting.

In 2000, when Albert Charpentier was looking for money to launch Intellifit, a company that uses body-scanning machines to help retailers sell clothing, he had two acquaintances at Robin Hood Ventures, a Philadelphia angel group. "I pitched those guys first and made sure they liked the business," Charpentier says. His archangels were skillful advocates: Robin Hood invested $200,000 during Intellifit's initial round.

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Eric Hahn is one of Silicon Valley's superangels, a former Netscape CTO who has seeded the likes of Good Technology, Opsware (Research), Red Hat (Research), and Zimbra. He invests his own money--but only in startups that possess hard-to-replicate technology. "For example," Hahn says, "I would have passed on eBay (Research). It's a great company, but it was mainly an exercise in building a brand."

Like Hahn, many angels prefer to invest in specific kinds of companies. Mark Cuban, the wealthy Texan who sold Broadcast.com to Yahoo (Research) for $5.7 billion in 1999, recently signed on as an angel investor in Brondell, a San Francisco-based manufacturer of Japanese-style toilet seats that wash and dry your derriere. Why did Cuban do the deal after many other angels had passed? According to Brondell co-founder Scott Pinizzotto, Cuban looks for companies that target the masses. "There are 220 million residential toilets in the United States," Pinizzotto explains. "That's our installed base, and that's what got Cuban excited." In December, Cuban invested an undisclosed amount in the company, opening up the pearly gates for other angels: Brondell has now attracted $1.3 million in seed-stage funding.

Of course, angels are really mortals: They want to make a difference. Asking an angel to work with your company in an advisory role is a great way to establish a relationship that may eventually lead to a cash investment. Don't view this as a bait and switch, however: Angels often enjoy wrestling with the challenges that startups confront. Along the way, "if you impress the angel, it will likely make her a strong advocate when it comes to funding," says Laura Roden of Palo Alto-based Angels' Forum.

That's how it worked for Troy Haaland. Haaland and three fellow programmers in Chicago developed a tool called eSigma that aggregates Web-based business process software. Haaland's team had plenty of technical skills but lacked business experience. Last October, Haaland approached Bob Okabe and Bob Watt, two active Chicago angels, and asked for their assistance. "Troy was honest," Okabe says. "He told us, 'Here's what we are good at, and here's what we're missing. Can you help?'"

Okabe and Watt worked with Haaland to develop a revenue model for eSigma, and they helped recruit a CEO who could concentrate on sales, marketing, and funding strategies. Things went well--so well that in February, Okabe and Watt led a group that invested roughly $200,000 in the company. They also plan to present eSigma to Prairie Angels, their investor group, and to local VCs. The budding entrepreneurs still face plenty of challenges, but now, at least, they're one step closer to heaven.

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