It's the closest to a smoke-filled room that the notoriously nicotine-phobic Silicon Valley gets. Once a month 100 of the area's wealthy, academic or just well-connected people meet to gossip, exchange ideas and decide the fate of three start-up companies.

The group is called the Band of Angels and the atmosphere at the dinner is clubby and tinged with anticipation. Membership is tightly controlled - there's a waiting list and the number of members is capped at 100.

The Band was formed three years ago by "12 men meeting in an upstairs room, just like the apostles," says Mr Fred Hoar, prototypical Valley insider and one of the founders. A basic requirement is a willingness to invest between $25,000 and $50,000 (£16,600-£33,000) in the nascent companies which present their plans during the monthly meetings. It's a group with few rules but it's one of the most powerful forces in Silicon Valley.

The Band is a group of wealthy investors which pools its collective knowledge to sniff out the real winners among the dozens of proposals that circulate around the Valley every week. Three companies are pre-qualified to present at their monthly meetings, and members who are interested in investing in the companies attend a subsequent, smaller lunch during which they can scrutinise the opportunity at a closer range.

The Band has had some notable successes, including encryption leaders PGP and Power Computing, which was recently purchased by Apple Computer. Companies that present at the meetings often can create side deals and partnerships even if they don't get all of the investment they were looking for.

A recent presenter was Ms Vani Kola, chief executive officer of Media Kola, a company founded to smooth the way for businesses to transact electronic commerce with each other. Ms Kola was not entirely typical of the CEOs who are invited to outline their plans, as she already had over $2 million in angel investment secured from members of the Band and others.

However, she saw it as an opportunity to get some exposure for Media Kola and attract investors who could bring her not just money but also expertise and contacts.

"It allowed us to talk about our strategy and philosophy in a way that would attract attention to the company from investors and partners whom we would not normally come into contact with," she said.

So who are these "Angels" and what role do they play in getting new companies and technologies to market? With venture capital firms falling over themselves to give money to start-ups, who needs angels anyway?

Angels are almost always wealthy, many having made their money as senior executives of companies which have gone public. They invest not just money but also time, giving their experience to young CEOs who are usually taking on their first senior management position. Angels work their connections to invest in eager young companies - often just one or two people and a great idea. They get in early, when money is really needed, so they normally get a good deal. And they move fast.

"They've taken risks all their lives, and they know how to manage it," says Mr Steven Domenikos, chief executive officer of start-up EPiCON, based in Boston. EPiCON technology allows Web users to access and manipulate documents and desktop applications remotely. It used the buzz around its technology not only to get angel funding ($4 million in the first round) but to create a board of industry luminaries which opens doors to customers, partners and ultimately more money.

"Venture capitalists move in a herd," adds Mr Domenikos. "They either all want to invest in you, so they won't be left out, or none of them will. Angels can think independently and don't have the same pressure to create blockbuster successes that VCs (venture capitalists) do."

Self-styled "Digital Maven" Ms Annie Van Bebber, a consultant whose successes include the Happy Puppy and Star Chefs Web sites, agrees. "You can strike a passionate chord with angels," she says. "There are no new business models on the Net, and anybody investing in it looks for the same things whether they are angels or VCs. But an angel can respond to niche opportunities, whereas the VC has to deliver the big win."

The relationship between a start-up and its angels is an intimate one. The key, according to Ms Kola, is "mutual reward and trust".

Ms Kola had no track record as an executive and no management team to surround her. "Just my ideas and me," as she says. She realised this was not the scenario to attract the attention of the venture capitalists. "They'd have taken a year to put together a management team," she adds. Her angel investors came on board quickly, allowing her to build a team of around 25 people, to prepare for a launch early next year.

One of the more delicate balancing acts for a start-up CEO is when the company starts to need more cash than an angel can - or wants to - provide. A company that has too much angel funding becomes less attractive to venture capitalist firms, which like to get significant ownership and a degree of control in return for their money and access to capital markets.

"To make an impact on the market you need $10 million$12 million eventually," according to Mr Steven Domenikos. "Venture capitalists want a return of 10 times the money they put into a company, and that's tough to do if the angels have got there first and made the shares more valuable." By the time a company needs to go to that next level of funding, they will have created a coalition of suppliers, customers and partners, all of whom have a stake in the company's success. The smartest companies tap that sentiment and turn those stakeholders into shareholders. Ideally this combination takes the company to the point when it makes a public offering - which of course makes the CEO and other executives wealthy enough to become angels in their own right and start the virtuous cycle over again.

Frank O'Mahony lives and works in Palo Alto, California. He can be reached at frank@liffey.com