Small cap means companies with small capitalisation, relative to other companies. The 251st company and below on an exchange, by way of market capitalisation, have been termed as small cap companies by Sebi.
Small caps make for the riskiest of stocks as they generally have small revenues, small teams and small customer bases. Information about them is hard to come by.
Investors usually go by future prospects, goodwill, and likely profitability of such companies before buying their stocks.
The incremental growth percentage is highest for small caps because of growth potential being far from fully realised.