Since 1980, venture capitalists have provided hundreds of young companies with second- and third-round financing. Lately, some Wall Street veterans have been asking a good question: Who will be taking all these companies -- especially the smaller ones -- to the public market?

One such questioner is Tony Baer, a 48-year-old investment banker who has worked for several underwriting firms specializing in financings for smaller companies. In recent years, he points out, "the number of underwriters has shrunken dramatically through mergers, acquisitions, and bankruptcies. And there certainly aren't very many that are interested in raising $2 million to $4 million." So, sensing an opportunity, Baer left his job at Allen & Co. last summer and set up a new investment banking firm, called -- appropriately enough -- Baer & Co.

Initially, the New York firm will concentrate on raising public and private money for small high-technology companies, much as Baer did during the 1970s when he was employed at Hambrecht & Quist and C. E. Unterberg, Towbin Co. (the forerunner of L. F. Rothschild, Unterberg, Towbin). Its first underwriting, filed last October, is a $3-million equity deal for Wire Graphics Inc., a four-year-old company based in Farmingdale, N.Y.

To be sure, Hambrecht and L. F. Rothschild remain formidable players for larger initial offerings. But times have changed in investment banking. With all their overhead expenses, concedes an L. F. Rothschild partner, "it's awfully hard for us to gear up for much less than a $10-million underwriting."

Perhaps for that reason, the formation of Baer & Co. has been greeted warmly at established Wall Street firms. Indeed, Baer launched the company with some $2.4 million raised from 32 financial professionals -- including three former employers. He says that Baer & Co. won't even try to compete with the larger investment banks and has no current plans to develop a large sales force or a trading operation. "There are plenty of other people making markets," he says. "We'll just concentrate on our market niche."