This might not be the answer you want to hear, but it's not necessarily possible.
Kids are a full-time job. So is a full-time job. So you're asking if there's time for three full-time jobs.
In my experience most people who claim to do startups and spend time with their kids, don't. Usually kids lose.
Alain points out correctly that you can probably free up 4-8 hours per week, but I would counter that you're not going to build a startup in that timeframe. There's just too much to do.
My advice: Save up so that you can really pair back the consulting to 20 hrs/week and work on the startup at least that much time. Structure your business model such that you can generate revenue fast.
First, you'd be amazed how much can be accomplished by working nights and weekends. Yes, it can be tough on the family, so a good schedule could be: leave day job at 5pm sharp, play with the kids until they go to bed, then work on your idea while the family is sleeping. You could presumably sneak up to 3 hours of work per day. You'd be exhausted eventually, but you can see how far you can push yourself.
At some point, you may need to become more serious and cut back on the consulting. You probably could free up an afternoon per week. Maybe you can negotiate to go work 4 days a week, depending on your situation. It's unpleasant and your employer won't be happy, but if you don't give them the choice, they might accept. Just be prepared to have to look for another consulting gig.
Doing a startup has its risks, but you knew that already.
There are some really good responses about clearing out your schedule to make some free time available either at night and working weekends.
A lot depends on what sort of business you are wanting to start and how you are planning on growing it. Along the way sacrifices will have to be made. In my opinion true balance doesn't really fit into an entrepreneurs life. There is always a lot going on.
Time can definitely be freed up during the course of the day if you work hard enough at it. However the bigger question one should be asking is "Am I ready to make the sacrifices to make my business succeed?".
It all comes down to your priorities, values and personal ambition.
Best of luck.
if you coordinate with your partner to take vacation time at the same time you have a focussed burst of development you at least have something to show to investors.
the other option is start getting up really early, before the kids. Your going to be tired at night, regardless of when you get up
My partner & I are in the same position and currently designing a site which we hope to launch before Christmas.
We usually talk about the project every day at lunch, meet 1-2 evenings/week (7pm-12am) and Saturday (8am-5pm). This leaves us a few evenings per week for life maintainence, Saturday evening for our wives and all of Sunday to really focus on our kids. We stay really focused and things are moving along nicely.
But you do have to be very careful of neglecting your kids as Jason pointed out.
You can try to work on your startup for a few hours every week but there will come a point when you'll realize that it is not enough. In order to produce something worth while, you will have to give up one of your activities - which will probably have to be your job to concentrate on developing the startup because there is just so much to do.
Of course I would not recommend just dive in unless you are 200% convinced you can survive for a period of time, but rather gradually see how much of the day-job you can leave out. From my personal experience, you'd be surprised how much more productive you become once you can devote to your project full-time.