(FORTUNE Small Business) – Seven years ago Wall Street banker Dan Levinson was itching for a change. He had been working for ten years at Holding Capital, a New York City firm that invested in small and medium-sized businesses, and was doing quite well, but like many ambitious execs, he wanted to strike out on his own. His idea was a novel one: Start an investment firm backed not by the usual big institutional investors but by successful Main Street entrepreneurs. Levinson figured he could use their hardscrabble experience, insider knowledge, and hefty Rolodexes to help him find attractive businesses, build them up, and then sell them for a handsome profit.

Fast-forward to the present and you'll find Levinson, 42, sitting in his Westport, Conn., office running Main St. Resources. He and his partner, Marshall Kiev, 36, have raised $22 million of Main St.'s investment pool from 90 seasoned individuals. Half of them are entrepreneurs, including Allan Tessler, founder of Data Broadcasting Corp. (which spawned CBS MarketWatch), and the rest are executives, such as Michael Goldstein, former chairman of Toys "R" Us. The Small Business Administration, which places money with private-equity firms to spur small-business growth, kicked in an additional $44 million, bringing the firm's investment pool to $66 million.

So far Main St.'s investors have helped Levinson and Kiev find and manage six businesses, ranging from a hotel linens supplier to a parts distributor. It buys $2 million to $10 million ownership stakes in the companies, hoping to earn compound annual returns of 35% or so on those investments when the firms are sold. Levinson believes he can get those kinds of returns by building close relationships among Main St., its investors, and the CEOs of its portfolio companies. That in turn will unleash a virtuous cycle of shared information, guidance, and resources that will produce higher profit margins than the conventional Wall Street approach. "Most financial firms view themselves as four people sitting in a room writing checks. We view ourselves as a real company, with a strategy of taking care of our CEOs and our investors," says Levinson.

Main St.'s approach won't be validated until it begins selling off the first of its portfolio companies, probably between 2006 and 2009. With only three full years of operation under its belt and just $22 million sunk into six companies so far, its experiment in investing is far from a proven success. "A lot of people say they're unique. The proof is in the numbers they ring up when they sell their companies," says Paul Schaye, managing director of Chestnut Hill Partners. Still, Levinson says all six of his companies are hitting their profit targets.

Main St. won't invest in technology companies, real estate deals, or startups because they are too speculative. Instead it buys into established concerns with good track records, such as Best Manufacturing, a linens maker and distributor in New York City; Sage Parts Plus, a parts distributor for airline ground equipment in Farmingdale, N.Y.; and Vertex Fasteners, a distributor of stainless-steel fasteners in Pawtucket, R.I.

The most important part of Levin-Son's formula, though, is that he runs Main St. as one big happy family. "The real difference here is that it's a very networked, intimate group of investors," says Steven Manket, a partner at New York investment bank Davis & Gilbert and a Main St. investor. "Many know each other or have been in business together before."

One of the network's most valuable functions is finding prospects for the firm. Consider how Best Manufacturing, a 90-year-old maker of linens for hotels and hospitals, landed in Main St.'s portfolio. Businessman Tim Healy invested in Main St. on the strength of his confidence in Levinson, whom he'd befriended when they both worked at Holding Capital. Healy also was a 20-year board member at Best and close friends with Lester Maslow, its owner. Maslow ran the company until 2001, when at age 87 he realized it was time to sell. Healy thought of Levinson right away: "I just think so highly of Dan that I said to Lester, 'I want you to meet someone who's terrific.'"

Main St.'s entrepreneurs sometimes help a firm avoid costly mistakes. When Levinson was evaluating the Best deal, he turned to Steve Stillerman, a serial entrepreneur and Main St. investor. Stillerman had a friend who was one of Best's largest customers. The friend's analysis--that Best had a dominant position in the linens industry and needed only a stronger management team and more overseas sourcing to thrive--was critical to Main St.'s due diligence on the company.

Stillerman is one of the seven members--all of them investors--on Main St.'s advisory board, which meets quarterly with Main St.'s six portfolio companies to review their performance. Together the advisory board members have 163 years of business experience, and they help out on everything from asset management to inventory turnover to benchmarking.

Main St. regularly calls on its investors for advice, even if they're not part of the advisory board. For example, when United Airlines went bankrupt in 2002, one of Main St.'s investments, Sage, faced a cash crunch. Not only did Sage stand to lose $1 million in receivables owed by United, but many of its suppliers began to balk at extending credit on Sage's purchases. Main St. quickly turned to a SWAT team of investors, who looked into where Sage could borrow extra cash and suggested ways it could collect from a bankrupt customer. Because of the advice Sage received, its cash crisis has passed, and it has just signed a new supplier contract with United. "Quite frankly, we expected a lot of concern and intrusiveness. Instead we got far more support than we anticipated," says Mark Pollack, Sage's 36-year-old CEO. That's just the kind of happy-family chatter that Levinson likes to hear.