(FORTUNE Magazine) – When Eric Hahn left his post as chief technology officer of Netscape earlier this year, he had to decide what to do with the rest of his life. At 38, he'd made millions running two startup companies, cc:Mail and Collabra. He'd also done time as an exec at Lotus and Netscape, the companies that acquired his startups.

Elsewhere in American business, someone with Hahn's tenure and financial freedom might have thought about retirement. But in Silicon Valley, people don't retire. They become angel investors.

The term "angel investor" originated with Broadway theater but first appeared in Silicon Valley vernacular about a decade ago, when there was a dearth of venture capital for the high-tech industry. Back then the survival of cash-strapped companies often depended on beneficent individual investors swooping in with fresh capital.

Today's angel investors play a different game. They invest their own money in startups in return for equity, and sometimes they also take a board seat. Most angels offer advice to the startups they work with, becoming mentors for fledgling executives. They usually aren't in the game to become richer than they already are; what they seek is the thrill of working with new technologies and companies. No one is sure exactly how many angels there are in Silicon Valley today. Garage.com, a company that links angels with startups, estimates that there are between 1,500 and 2,500.

Hahn's story is typical. After turning down offers to join both Kleiner Perkins and Benchmark Capital as a professional venture capitalist, Hahn officially angeled himself by setting up a personal investment vehicle called Inventures. He won't say how much of his nest egg he's set aside for Inventures, but acknowledges that it's between $1 million and $5 million. Most of that comes from Netscape stock he sold shortly after Collabra was acquired in early 1996. Hahn benefited from good timing; according to SEC filings, he sold the bulk of it in the $50-to-$70 range and netted some $29 million. (He still owns 61,000 shares.)

Hahn's taking a more active approach than the average angel investor. Rather than invest, say, $50,000 into lots of different companies, he has decided to put six-figure sums into just three. In June he invested in and took board seats at Supernews, a Usenet company; and Kana Communications, which promises to help companies manage E-mail from customers. He'll invest in one more by the end of the year.

The idea is to limit his portfolio so he can stay heavily involved. "I suspect that there are angels out there who will make a lot more money than I will because they optimize for the financial return. They invest in more companies and have a less intimate relationship with them," says Hahn. More than 100 business plans flooded into Hahn's office in June when word got out that he was leaving Netscape. Hahn hooked up with Supernews and Kana through Benchmark, which has about $4 million invested in each company. Benchmark also backed Collabra.

Hahn has offices at both Supernews and Kana. He officially spends Tuesdays at Supernews in San Jose and Wednesdays at Kana in Palo Alto, but he considers himself basically on call for both companies five days a week. At Supernews he's acting chief technical officer, working on product development. At Kana he helped the company raise additional financing. "He's the greatest mentor a small company could have," gushes Supernews CEO Bill Lee.

Being an angel lets Hahn stay in the game but avoid the dirty work. "It's only been a few months, but I get up every morning and pinch myself," he says. "I think I've discovered the perfect life." He's having a ball: He takes large groups of Supernews and Kana employees out for lunch and regularly invites broods of engineers over to his house in Palo Alto, where he'll host the Kana Christmas party. Yet he avoids the grinding stress and long hours of actually running a company. Says Kevin Harvey, a Benchmark partner who sits on Supernews' board: "When you're the CEO, you're sweating every decision, seven days a week. We can help, but it's Bill [Lee of Supernews] who owns the problem." In other words, the angel investor isn't the guy who has to turn out the lights and lock the doors at 2 A.M.