The way that M&A activity happens in hot sectors has always been interesting to me. Not just in the obvious way, as in “I hope I get a big exit for my startup.” Interesting in the sense that you get the big news of a YouTube, followed by failures or go nowhere-ism of other promising sites like Revver, Stage 6 or Guba.

Then, a recent book review I read in The New Yorker got me thinking. Is it possible that high-profile exit events in a hot sector create a sector-wide sense of “endowment?” Here’s an excerpt from “Predictably Irrational: The Hidden Forces That Shape Our Decisions”…

Another challenge to standard economic thinking arises from what has become known as the “endowment effect.” To probe this effect, Ariely, who earned one of his two Ph.D.s at Duke, exploited the school’s passion for basketball. Blue Devils fans who had just won tickets to a big game through a lottery were asked the minimum amount that they would accept in exchange for them. Fans who had failed to win tickets through the same lottery were asked the maximum amount that they would be willing to offer for them.

“From a rational perspective, both the ticket holders and the non-ticket holders should have thought of the game in exactly the same way,” Ariely observes. Thus, one might have expected that there would be opportunities for some of the lucky and some of the unlucky to strike deals. But whether or not a lottery entrant had been “endowed” with a ticket turned out to powerfully affect his or her sense of its value. One of the winners Ariely contacted, identified only as Joseph, said that he wouldn’t sell his ticket for any price. “Everyone has a price,” Ariely claims to have told him. O.K., Joseph responded, how about three grand? On average, the amount that winners were willing to accept for their tickets was twenty-four hundred dollars. On average, the amount that losers were willing to offer was only a hundred and seventy-five dollars. Out of a hundred fans, Ariely reports, not a single ticket holder would sell for a price that a non-ticket holder would pay.

So bear with me a second. Who wouldn’t say that, to some extent, the boys from YouTube hit the lottery with their $1.4b acquisition by Google? You could totally see the “We can hardly believe it ourselves” grin on their faces the day after the deal.

Isn’t it be reasonable to think that every other company with a user generated video upload and sharing site felt some sense of “endowment” the next day? A little of tinge of excitement that they might also be sitting on a billion dollar gold mine?

And who could doubt that other potential acquirers interested in the UGC video space might feel like “losers” in the lottery that Google paid dearly to win? Like the Blue Devils ticket holders in the quote above, the over-ambitious expectations of people who feel like winners vs. the skeptical low-balling of potential bidders who feel like losers means that no follow-on wave of deals happens in the wake of a sector-making event.

I need to think through this notion further, but I do think there’s something here. I also think the best recipe for successful exit after a big M&A event in your sector is to have staying power. It took a couple years, but Bebo just went for $850mm to the MySpace deal of $580mm in 2005. Social networking stayed hot enough that people feeling “endowed” after MySpace re-sync’d with skeptics who said, for a while, that $580mm was too much for News Corp. to pay.