Above: Jay Levy at Zelkova's Manhattan office

Investing in startups is a funny business. Sometimes venture capitalists find themselves with a company that is growing and profitable. But if there is no opportunity for an IPO or acquisition by a bigger competitor, there may not be an exit on the table that allows the VCs to get a return on the money they invested which satisfies the backers who support their fund.

“It’s a broken system in some ways,” says Jay Levy, co-founder and partner at Zelkova Ventures, over a lunch at Five Napkin Burger in Hell’s Kitchen. “The problem is that most funds are structured so that you can’t reinvest gains from an exit.  This can put VCs in a position where their incentives are misaligned across multiple funds. We think allowing returns to be put back to work is the healthiest system for us, our backers and the companies we invest in.” An evergreen fund, Levy believes, allows for success with smaller returns.

Levy, with gelled black hair and thick silver watch, looks a little more Wall Street than most Silicon Alley venture capitalists. After college he went to work at Morgan Stanley, building software platforms for the banking giant. From there he spent time at the consulting firm MPI, which was eventually acquired by a financial services giant. VentureBeat asked if it was his background in finance that inclined Levy to try out a unique approach to venture investing.

“Not at all, it has more to do with my early experiences as an entrepreneur,” Levy said. He formed a company, UConnections, while he was an undergraduate at Rutgers. “We were pushed by our investors to expand quickly and win the market. In doing this we moved from being profitable to burning considerable cash.” When the venture markets tumbled in 2001, UConnections couldn’t raise cash or scale back quickly enough. It was a powerful and formative lesson for Levy. As for being Wall Street, “When we first started in 2008, I was the only VC coming to meetups in jeans,” Levy joked.

Over the last year Zelkova’s profile has grown as two of its portfolio companies, Fab and Klout, raised significant series C rounds that valued the startups in the hundreds of millions of dollars. Overall Zelkova is backing 35 companies across verticals like the consumer web, green tech, and software as a service. And as the infographic below shows, there has been substantial growth in its portfolio, doubling the employee count among Zelkova companies since this time last year. But can it become a bigger player without raising fresh capital?

“We’ve had three exits in four years. The pool of capital we have to work with is growing. We think maybe this is a sustainable model,” Levy said. It certainly gives them a unique ability to focus. Most venture funds raise capital on a ten year cycle. By the third or fourth year investing, they already have to be out working on a fresh fundraise. Zelkova’s small pool of backers seems content to experiment, although their lack of interest in a cash return can’t last forever.

“It’s an interesting approach, much closer to what angel investors do,” said one New York VC, when VentureBeat asked for an opinion of Zelkova’s model. “In some ways it definitely allows them to be more nimble. But just like all funds, it only works while things are going well. At some point you might still need to go out and raise again.”

To track their growth over the last four years, Levy created this infographic charting everything from his firms investments, to their tweets, to what their portfolio companies think of themselves. “We asked all our companies to rank themselves from 1-10. We have a couple startups I might call a ten in there, but they didn’t think so highly of themselves,” Levy said. “There was one company that gave themselves a perfect ten, I don’t know quite what they were thinking.”