Timing and pricing of micro-acquisitions: A Perspective from effort justification theory

Abstract

Micro-acquisition marketplaces are a recent phenomenon in the world of entrepreneurship that facilitate the matching of buyers and sellers of relatively small-scale startups or pre-startup projects. Unlike traditional acquisitions, in micro-acquisition markets, sellers typically decide on the timing and offset an initial asking price for the deal. However, cognitive biases are likely to interfere with these decisions and lead to suboptimal decisions that prevent efficient matching. We argue that the age of a project at the time of listing can act as a proxy for the time and effort that has been spent by the entrepreneur to develop the project. Building on effort justification and cognitive dissonance theories, we argue that there is a curvilinear relationship between project age and price; and that this relationship is moderated by the level of revenue achieved by the project at the time of listing. Using data from Acquire.com, we find empirical support for these patterns indicating that entrepreneurs may justify a higher price because of higher effort up to a certain threshold, and especially for higher revenue projects.