I still have to disagree with your assertion that the sale of employee options at a lower price necessarily impacts the overall valuation of the company and it’s ability to do strategic deals. The price of employee options is NOT the same as the value of the preferred stock of the company. FB’s investors hold preferred stock which carries many more rights and preferences (5x liquidation preference for example)than employee common stock. As a result employee common stock is almost always valued (in a private company) at a discount and sometimes a substantial discount to preferred stock. Therefore when companies do strategic deals the meaningful number is total value of all shares. This is the weighted average of the number of preferred shares * preferred price + the number of common shares + common price. My sense is that the Twitter deal didn’t work because in a private to private transaction you look at the relative value between the two companies. In this case Twitter would have preferred a lower FB value thus receiving a higher % of the company.

FB could be worth $100M and Twitter $10M for all it matters and the deal may or may not work. As long as both parties agree on a transfer value that prices one company at a certain % of another company than a deal gets done. The pricing of employee stock options has virtually nothing to do with this.

Now, considering they have $400M in expenses, and that most users are coming from countries with small (if not nonexistant) ad markets and therefore when coupled with the crisis, no hope of a significant increase for 2009, those $500M in funding wont last long.

A couple of other points. 1. Irrespective of the option sale, investors should be marketing the assets to market on a quarterly basis. As a public company MSFT should have to although VC’s can do it optionally since they are private. Under FAS 157 the option sale may have been a benefit to investors giving them a market datapoint to set the value to. Sure $4B is way below $15B but it’s way higher than they would be valued if they were public.

1. What are the business impacts of an arbitrary and illiquid value??? Whether Facebook is valued at $1 or $15B is meaningless to how you run the business other from a perception standpoint. Fact is they generate revenue and are burning cash with no business model and no chance for a liquidity event unless they sell the company.

2. Of course not allowing employees to sell stock options impacts them since they probably traded lower salaries for equity which is illiquid. Welcome to the great start up dream and be happy you have a job. Now if you argue that FB will need to raise salaries since employees don’t see the value in the equity then there is a business impact. However this is from the illiquidty in the market for the stock not the valuation.