akirk is historically right but more recently there are two changes, at least in the U.S., that seem to be helping to fill the gap. One is the formation of angel networks that act more like VC firms and take larger positions than any single angel investor is likely to take. The second is that some VC funds, often through creating a special fund, have moved down into that bracket, primarily to make sure that they have a seat at the table if and when the company seeks funding at the next level. It's sort of like a professional sports team investing in a minor league team to help keep the talent pipeline filled.
Also, even when the typical investment gap exists between the single angel investor and the VC firm, the solution is typically to find more angel investors. That usually means more networking and going farther afield to find investors, which typically means that the company needs to put together a formal private placement memorandum as opposed to sitting down and simply going through the business plan. That both drives up the cost and lengthens the time frame for raising the capital, but it is often the only way to have a realistic chance to fill the gap.
The bottom line is still the same, though. Even with the multiple ways to fill the gap, raising capital in the $500K to $2M range is the hardest to do.