"My question is how you get over the capital hurdle when you have a product that straddles the fence between the need for Angel Investors and VC money and your friends and family cannot get you over the hump?" -- Bob
This is a complex question. Let's just say that Friends money might be up to $100,000 or so; angels might go up to $500,000; and VCs really are going to start at a minimum of $5MM. 
So, there is a gap between angel amounts and VC amounts. So Bob is right in that there really is a kind of no man's land of 1MM to 5MM for many entrepreneurs who have a legitimate ability to use professional investment in their business venture.
One solution may be to try and derive the important milestones that the "next" investor will consider to be critical. This makes the assumption that the entrepreneur can make progress spending small amounts of money that demonstrate viability and create interest in some way.
This involves a conversation with an investor that addresses the question "What would I have to achieve for you to invest?" Possible answers might be prototypes, market tests, potential customer testimonials, or some combination of these and other factors.
In other words, the entrepreneur wants to spend the least amount of money to eliminate the highest risk as perceived by the next investor in the company.
This is important because it will allow the entrepreneur to value the company more highly in the next round because the next round investor will value the reduction of risk that has occurred.
By taking these risk reducing steps in increments, and assuming that the market is attractive to investors, the entrepreneur can achieve her goals.
For the first time entrepreneur, this will often mean starting with a bootstrap or friends and family model, or a combination of the two, to create some credibility for the product concept.
The other thing to think about in this situation is - can the entrepreneur reach the returns required by venture capital investors? An extremely shorthand version of that is 30X the original investment in 5 years or less. If the business has the potential to reach that level, great. If not, staging investments in smaller amounts may work better.