Is there some common method or methods they use? I can't believe they go to agencies because you just don't seem to get the really really good and passionate developers from those sources.
So where is it that they go?
I realise that a certain percentage of startups won't even need to look because they already have contacts that they can convince to quit their current job and join them. But it cannot be like this for every startup and every position they need to fill, surely?
Part of it may be trial-and-error: at one startup where I proved to be the good developer, I was the owners' fourth attempt to hire a developer (previous ones quit and/or were fired).
He found me by advertising in a government-sponsored employment centre ... i.e., more or less by bottom-feeding if you'll excuse the expression; or, to put it more politely, by taking a chance on unproven and relatively cheap labour.
Incidentally, the owner didn't value university degrees, especially in Computer Science: he prefered to hire developers who were 'self-taught'. When I helped interview the next developer after me, I recommended that we hire: and I recommended that based on the software which he'd written as a personal project, and demoed in the interview (which, to me, proved that he had the technical skills we needed).
The best way is to already know the first few developers you are hiring. This is especially critical for developers you plan to compensate heavier with equity than salary at the early part of the start-up's life.
Otherwise, when hiring someone I don't know, I like to hire people who have done a project on the side for fun, especially if they are recent grads--Such a project shows initiative, creativity, and that the candidate actually enjoys building stuff enough that he does it for fun. To me, that's important, especially in an early-stage start-up--Often, 9-to-5 "this is just a job" isn't good enough in that situation.
A big part of a start-up being successful is who the founders know at all levels of the business. If the founders don't know anyone who can build the product, and don't have a way to find those people, it's probably the case that the founders/mgmt team aren't going to be sufficient to make the company a success.
Re-reading your question, though, I am not sure if your question is "I am an start-up looking to hire developers" or "I am a developer who wants to work at start-ups." If the latter is true, go to a start-up who has just closed a Series A round[1] and work there for a while. Some of those people, in 2-5 years, will often leave to start their own companies. If you do a good job, you might be invited to join them.
[1] San Jose Mercury News and others post a list of these companies every so often; and of course, look on the VC "tabloid" web sites like VentureBeat, etc. By the time Series A has happened, a start-up may have a recruiter on-board, even if he's just part-time.
I would guess there is no common method.
I've worked at three startup's so far.
One found the majority of it's developers through word of mouth.
I.e. they knew someone who was a developer, who they hired, who knew other developers etc.
One found their developers through agencies.
One found their developers through business relationships.
This was slightly different to the first one, as they didn't know the developers directly.
They have since been through 3 or 4 groups of developers, who didn't deliver as expected.
The early developers at most ISVs either tend to be the founders themselves, people the founders know or have worked with in the past, or people recommended to the founders by trusted sources (investors etc).
If you're looking at starting an ISV and have none of these avenues available you may wish to consider whether founding an ISV is the right move for you.
If you're looking to become involved with a startup then your best bet is to be extremely pro-active. If the startup has an API then use it, create things, and offer feedback. If they don't have an API then give them technical feedback on their product and ways it could be improved. If they're a startup then low-cost / high-benefit opportunities are always welcome. Engage people at the company and show them the value you bring to their field. Be passionate!
Many startups recruit from the early "avid user" pool, and even if they don't you'll be in a strong position to apply for a job whether they're actively recruiting or not.