Facebook cancels employee stock sale

So much for Silicon Valley's latest get-rich-quick scheme. Facebook CEO Mark Zuckerberg has cancelled a plan to let employees cash out their shares early.

In August, before the markets started to melt down and with Facebook worth $15 billion on paper, Zuckerberg unveiled a plan to let employees sell a small amount of their shares — no more than $900,000 or 20 percent of their stock holdings, whichever was less. The program, all but unheard of among Valley startups, was meant to appease employees who were agitating for some chance to make money from their shares. It was a revolutionary new way to reward employees, without having to go through an IPO or a sale.

The revolution is over, Zuckerberg told his company today. "I'm writing this note to let you know some bad news," he wrote in an email to all employees at the 800-person social-network startup this afternoon. "Despite a lot of work, we have not been able to finalize a plan for the employee stock sale we announced in August."

Facebook executives had been courting potential buyers for employees' shares since the summer. But as the value of Google tumbled from its high of $700 last year, would-be investors started asking questions about whether Facebook's value, too, had dropped. By last month, they were getting downright nervous.

Microsoft had invested $240 million in the company for a 1.6 percent stake in the company that valued all of Facebook at $15 billion, but that deal came with extras: Microsoft bought preferred shares, which get paid off first if the company's bought, and it also got an advertising deal with Facebook at the same time.

Facebook's common shares, meanwhile, have a value that put the whole company's worth at around $4 billion. Or they did. A source close to potential investors said they wanted to buy shares from employees at a lower valuation, or with guarantees similar to Microsoft's. To reward a small number of employees who had enough shares to benefit from the program, Zuckerberg would have had to give away something for nothing.

It's still a crushing blow to morale at the company that was once Silicon Valley's highest-flying startup. Facebook once had the pick of the world's best and brightest, hiring brilliant kids from college who had gone through school addicted to the social network.

So Zuckerberg's back to the original startup business plan: Make a big bet, and hope it pays off years later with an IPO or a sale. Facebookers will have to make the same bet, too. It's not as exciting as overturning Silicon Valley's financial order. But right now, just drawing a paycheck seems like a lucky thing.