Distressed/Restructuring Company Lifecycle <Q Turnaround Investment         \ Start-Up } Growth/Development y Mature "^>   FIGURE 28.1 What Is Private Equity? based substantially on the effectiveness of the innovation, and would have relatively little to do with trends in the public equity market. Businesses of this kind could be classic start-up or venture investments, but could just as easily be growth or turnaround deals. Other kinds of private investments might have returns that are substantially based on the public equity market. In one obvious case, some buyout investments involve nothing more than applying a higher degree of financial leverage than similar public companies. In such a case, it is clear that the returns will be highly correlated with the public market. Less obviously, some start-up or venture investments are really just copies of other recent successful start-ups. To the extent that such an investment has little that is really new in its sources of risk and return, it might be expected to be reasonably highly correlated with some portion of the public equity market. This was seen clearly in the Internet and telecom bubbles of 1998-2000, when many copycat start-ups were found to have returns strongly correlated with returns in the public market. We can see that different portfolios of private equity may have very different risk characteristics. Risk in private equity is thought to be related to several factors, including: II Strategy (as described earlier) II Industry or sector II Company size II Geography Thus, a portfolio of private equity investments consisting of nothing but California-based, early-stage technology start-ups with enterprise value under $10 million might be expected to have very different risk characteristics from a portfolio of