Bill Burnham, a former venture capitalist at Silicion Valley venture firm Mobius, has finally launched a hedge-fund, after two years of trying to raise a venture fund.

He finally gave up on the venture idea, he said, instead assembling $10M from a group of venture capitalists and other investors to invest in small public technology companies. He may raise more, he said.

His new fund, called Inductive Capital, was first reported on by the Mercury News over the weekend. VentureBeat talked with Burnham on Sunday, and he explained his reasoning to us: Sarbanes Oxley and other regulations have meant small tech companies don’t get very much analyst coverage. So why not leverage the collective wisdom garnered from his venture capital contacts, to make smart bets on these small public companies that no one else really knows anything about. By being close to private start-ups, he says he can get a good feel for how they will impact the fortune of publicly traded companies.

Companies with market values of $500 million or less get practically no coverage by analysts, he said. Sometimes you’ll find companies valued at $1 billion with no coverage, he said. There are many other hedge funds out there, but very few tightly focused on small-cap tech investments, he said. He mentioned a similar little-known effort by venture firm Matrix Partners, which has a hedge-fund operation in Boston. Venture firm Partech also has a small hedge-fund practice, he noted.

He’ll be focusing on software and Internet investments, where he has had most experience (among his past investments were Datapower, Gold Systems and Before becoming a VC, he was an analyst at several investment banks, and so this move out of venture capital follows a trend. Many former ibankers became VCs, but left the VC industry after the first Internet bubble burst.