(FORTUNE Magazine) – Three years ago, Steven Schussler was headed for either restaurant heaven or the psychiatric ward. Living in the company of 45 parrots, four toucans, two tortoises, and an iguana--and changing diapers on a baboon named Charlie--Schussler had spent over half a million dollars transforming his home into a prototype for a jungle-theme restaurant. Artificial waterfalls tumbled down custom-made rock formations, animatronic crocodiles bobbed their heads, and speakers piped in the roar of a tropical thunderstorm. Outlandish? Sure. But even stranger, perhaps, is that he actually snared some very serious investors, including casino king Lyle Berman, and today his Rainforest Cafe is a thriving business. The first one opened at Minneapolis's Mall of America in 1994, then another sprang up in suburban Chicago. Future launch sites include Disney World, Las Vegas, and the boardwalk at Donald Trump's Taj Mahal in Atlantic City. Rainforest stock is hotter than a jungle fever--up from $6, when the company went public just over a year ago, to a recent $37.

Even in a market for new issues as overheated as this one, finding investors to bet on such a curious business was no picnic. In fact, Schussler's dream might have remained nothing more than a tropical fantasy had he not enjoyed a special, entrepreneurial advantage: He had the good sense to be located in Minneapolis.

Yes, Minneapolis. There are few spots on the planet where so much cash is chasing so many creative ideas. Minneapolis-St. Paul has more Nasdaq-traded issues per capita than any other metropolitan area. More venture money flowed into the area last year than to New York or Philadelphia (see table). Besides all that capital pouring in, there is abundant seed money from a loose confederation of local investors, sometimes called the Minneapolis Mafia, who have a stellar record for taking chances on new businesses and coming away winners. "In terms of the number of publicly held companies, startup deals, and venture placements, this is one of the most active places in the country," says Twin Cities financier Wayne Mills.

Why Minneapolis-St. Paul? Could it be that the moon-frigid winters encourage people to sit at home and tinker? This is, after all, a place that counts among its most prominent corporate citizens 3M, which gave the world videotape, Post-it notes, and Scotch tape. The Nerf Football was invented here. Rollerblade was a local startup.

Actually, the mystery of Minneapolis may be traceable to something more specific: old Frankenstein movies. Earl Bakken, now 72, invented the first practical, independently powered pacemaker in his garage here. The company he founded to sell it, Medtronic, grew into a medical-products giant and became such an idea factory that at least 35 new companies were founded by Medtronic veterans. They helped Minneapolis-St. Paul earn the nickname Medical Alley. Bakken explains how it all began: "I became interested in the use of electricity to reanimate people in 1931, when I saw my first Frankenstein movie as a child."

In similar fashion, an early success in the computer industry, Control Data, made Minneapolis a germinator of technology companies. Its founder, Bill Norris, also paved the way for subsequent entrepreneurs to tap the local capital markets. In 1957, he sold stock door to door for $1 a share, making Control Data the first computer startup ever to be publicly financed.

Over the years, shares of Control Data and Medtronic increased over a hundredfold, making millionaires out of many early believers and whetting the community's appetite for sinking money into local concerns. The upshot is a culture of buy-and-hold optimism that informs the investment community to this day. Says Tad Piper, CEO of Piper Jaffray, the largest investment bank in town: "People here are long-term thinkers; they see trends and invest in them."

This is an attitude that, endearingly, infuriates shortsellers. Shorts are investors who place bets against stocks they think will be gunned down by the market. There's nothing that raises their ire more than stolid faith in the stocks they want to trash. The term Minneapolis Mafia is borrowed from them. Contends one New York City short: "There's a love affair in Minneapolis with their own companies. Prices levitate because people there are willing to pay so much more for a local company than would most rational investors."

Perhaps, but it's hard to argue with results like those posted by the Perkins Opportunity fund, run by local money manager Richard W. Perkins, 65. It invests almost exclusively in Minnesota companies--and returned a whopping 70% last year, which places it just behind the 79% scored by Alger Capital Appreciation, the year's champ. Perkins, also known as "Perk," is considered the godfather of the Minneapolis Mafia. Although he mainly concentrates on acquiring outsize stock positions in tiny companies for his clients, he sometimes invests personally in businesses before they go public, if their prospects seem especially delicious.

A case in point--and a classic example of how the Minneapolis mob works--is Spine-Tech, a local company that has come up with a new way to immobilize the vertebrae of chronic back pain sufferers. Spine-Tech first attracted the interest of St. Paul Venture Capital in 1991; the investment officer in charge at St. Paul, David Stassen, thought enough of Spine-Tech to jump ship in 1992 and become its chief executive. When he needed to raise funds later that year, he approached the Minneapolis moneymen. One was Perkins. Another was David Johnson, 45, co-owner of the local brokerage firm Miller Johnson & Kuehn, who managed a private offering for Spine-Tech. That these expert mechanics and others were milling around in the crowd of investors was a good sign that someone had probably already kicked the tires. "This is still a small community where everybody knows everybody," says Perkins. "It is so easy to find out about people and check on their background and integrity."

Several of the investors in Spine-Tech, including Perkins and Johnson, belonged to an especially sought-after group of "angel investors"--wealthy private individuals who regularly parcel out $50,000 or $100,000 of their own money to promising startups. Johnson brought in his friend George Kline, 58, an angel responsible for bankrolling more than 100 Minneapolis companies over the past three decades.

Kline wouldn't know a spine implant from a machine bolt. But he knew Johnson had done his homework and had already put his own money at risk. Kline bought into Spine-Tech at a cost of $3.70 a share; most of the other angels bought in at $2. The stock went public last June and is trading today at about $30.

"There's a real network that exists," Kline says, based largely on loyalty. Made members know that if they tip each other off to lucrative opportunities, they will be in the loop no matter who finds the next one. "We give each other first rights of refusal on upcoming deals," Kline says.

Kline never invests in companies more than 40 miles from his office. The last time he trusted an out-of-towner, sinking $100,000 of borrowed money into an automated car-wash chain, its CEO skipped town, leaving a fuming Kline in hock to the bank. "I couldn't track him, which I have the ability to do in the Twin Cities," he regrets.

For him, parochialism pays. In 1974, Minnesota Vikings field-goal kicker Fred Cox came to Kline and asked him to help buy back the rights to a toy he had invented and sold to a local sporting-goods company. Kline and Cox each put down $1,000 to open a bank account, leveraged Cox's status as a local hero to obtain $500,000 of credit, and bought the sporting-goods company. Shortly afterward, Parker Brothers, which had marketing rights to the toy, began promoting it aggressively, and the two have collected, on average, $150,000 in total royalties every year since. The toy was the Nerf Football.

For all the money at stake, Kline and the other angels do business in a pretty informal manner. "We have our 15-minute power breakfasts downstairs at the Au Bon Pain and then we're off," says Ron Eibensteiner, 45, a fellow angel whose investment vehicle, Wyncrest Capital, is in the same building as Kline's firm, Brightstone Capital.

A while back Kline was recruiting investors to participate in a private placement for retailer Pet Food Warehouse. He waltzed into Eibensteiner's office and told him he was down for $100,000. "Obviously this is a joke," said Eibensteiner, who had never even heard of the company before. "No," said Kline. "It's a superstore for pets. Just write out a check. I don't have time to explain it." Eibensteiner did. His stock is now worth about $800,000, even though the company itself is doing poorly.

In a town where, as Eibensteiner puts it, "people are looking for the next moonshot," one star everyone wants to hitch their wagons to is Manny Villafana's. Villafana, 55, is the undisputed capo of medical-product companies in town. A transplant from the South Bronx, Villafana arrived in Minneapolis nearly 30 years ago, having signed on to sell pacemakers for Medtronic. Five years later he started Cardiac Pacemakers. Armed with nothing but the idea of taking advantage of a longer-lasting lithium battery for those metronomes of the heart, he raised $500,000, mostly from family and friends, in a 1972 IPO. The whole company was sold to Eli Lilly six years later for $127 million. By that time, he had already kick-started his second company, heart-valve maker St. Jude Medical. One $16,500 unit bought at St. Jude's private placement on July 4, 1976, would now be worth $18 million.

Villafana operates as informally as Eibensteiner and Kline. When he needs cash, he goes only to angels and third-tier brokerages. Larger firms like Piper Jaffray, he complains, "want earnings and stuff like that." But he does fine without those things. Dan McCulloch, an old neighbor and one of the original investors in St. Jude, says, "Manny can do anything he wants, and people will line up to give him money."

A sterling example was the way Villafana obtained financing in 1987 for the precursor to his current company, ATS Medical. At the time it was called Helix BioCore. Villafana remembers calling up both Johnson and McCulloch and saying, "Don't ask me, I need a hundred grand." When asked what the company did, he confessed, "I can't even spell it." Needless to say, they coughed up the dough, and Villafana threw some of his own in as well. By the time October rolled around, he was ready to raise some more in a private offering. A meeting of a few dozen angels was set for Monday, October 19--the day the Dow plunged 500 points.

After the market close, the angels, wounded in that day's massacre, straggled into a half-constructed suburban warehouse that was eventually to become the company's headquarters. "I could see the blood all over them," Villafana recalls, "but we did the meeting anyway." Meager space heaters could hardly keep the encroaching cold at bay. He made his pitch. Many of his listeners had taken the worst beating of their lives that day. Most put in less than they originally intended. But few backed out.

In the face of such optimism, it's easy to see why the shorts are so frustrated with Minneapolis. They gripe that a whisper circuit among local retail brokers contributes to the run-up in the price of stocks. Even Kline acknowledges, "There is always a rumor mill of nonpublic information that goes around." Be that as it may, one local broker, Kevin Harris, points to one reason the shorts are so miffed: "They had their heads handed to them on CNS."

Originally a maker of computers for monitoring brain waves and sleep, CNS now sells a nasal dilator called Breathe Right. This adhesive nose strip reportedly makes it easier for snorers to snooze, but is probably best known for increasing the oxygen flow to pro football players' much-battered heads. CNS would not exist if venture capitalists at Pathfinder Ventures and Piper Jaffray had not nurtured it patiently since 1983 and later helped it go public. One board member, Hunt Greene, 45, formerly at Piper and now running his own corporate finance boutique, is sure that "nobody in Chicago, Dallas, or New York would have taken this company public."

After a public offering in 1992, CNS shares lingered between $1 and $2. Perkins bought about a million shares and was named a director. Sales took off in 1995, and the stock shot up to $24. The shorts pounced. They looked brilliant as the stock sank back to $10 in October, but then it spiked to $24 again before settling recently at $20. "The bulls on CNS are out to lunch," says one shortseller, speaking on condition of anonymity. Responds Hunt Greene: "Everything is always impossible before it works. That is what entrepreneurs are all about--doing what people have told them is impossible."

That pretty much describes Steven Schussler, inventor of the Rainforest Cafe, a man obsessed with bringing the tropics to Minnesota. One visitor to his restaurant showcase home, angel Wayne Mills, a local broker specializing in early-stage financings, remembers "birds, fish tanks, and a certain scent. How he ate or slept is beyond me. I thought he was nuts." In the greenhouse laboratory on the roof, equipped with a full bar and tables, Schussler even experimented with real butterflies to determine how long they would survive and whether they would fall in the food. Schussler says his October 1994 electricity bill of $2,000 was the highest for any residence in the state.

When Mills saw the lines of hungry families outside the first restaurant after it opened, he shoved aside reservations about Schussler's mental stability and begged successfully to co-manage the IPO--the most profitable one his clients have enjoyed to date. Perkins also participated.

But the first person to put together money for the Rainforest Cafe was Minneapolis gambling magnate Lyle Berman, 54, founder of Grand Casinos (which topped Fortune's list of fastest-growing companies last year). In return for his investment and clout, Berman became Rainforest's chairman and CEO. His $1.2 million initial investment is currently worth over $40 million. Berman also has a stake in Las Vegas' just-completed Stratosphere Tower, the tallest structure in the world to be crowned by a roller coaster. A Rainforest Cafe will soon open at its base.

What will be the next Rainforest Cafe, the next quixotic brainstorm that generates a fortune with a nudge from the Minneapolis moneymen? Says Perkins, who spins out aphorisms the way Henny Youngman does one-liners: "Ideas are like gold, they are where you find them." But he knows he's more likely to strike gold the farther away he digs from other miners. Isolation has its rewards. It also helps that the plains of the Midwest are filled with wishful thinkers. Radio personality Garrison Keillor, who broadcasts his Prairie Home Companion from the Twin Cities, comments, "We're jailhouse inventors. Where else would someone come up with a Rainforest Cafe where you eat and moisturize in one sitting?" Keillor himself dreams of opening up a themed parking garage staffed by dancers, to be called Ballet Parking. "You laugh," he says. "Just wait and see."

REPORTER ASSOCIATE Joyce E. Davis