Small caps generally consist of startups or the companies in their early stages. These companies are yet to be discovered by the market.As the growth of these companies are comparatively fast and can become a mid and large cap-companies in future, and hence are able to reward their shareholders handsomely. Moreover, if you can find good small-cap companies in the early stages of development and invest in it, it's capable of giving several times returns.Here is a graph of S&P BSE Small caps index.
Source: BSE INDIA
The Index has given a return of over 200% in the last 5 years.Nevertheless, with rewards comes risks. These companies hadn't yet proven their true potential and might fail to do so in future. There are a high number of small-cap companies who are never able to turn into mid-caps and many a time even comes to the stage of bankruptcy or closure.