Most people know that small cap stocks tend to out perform large caps (Fama-French). But Mungofitch has recently pointed out that the quality of small caps in general has degraded significantly in recent years. Part of the explanation is that there is so much money in the system that founders no longer need to go public to get a payday.

A possible example is Google recently purchased a company called Photomath, a math teaching app for about $500 million. I'm certain for the founders, selling to Google was more attractive than doing an IPO. There is an upside for Google too. A number of parts of Google's key business operations were from acquisitions, including DoubleClick, Android, and Youtube.

It can be hard to see exponential growth when it is right in front of you. Companies like Google and Apple have been growing revenue by double digits for many years and now both make close to $100 billion a year in profit. The amount of money they are making is almost unbelievable compared to the value of a small cap company.

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