It is being reported that Twitter is close to finalising an $800m funding deal with as much as half of the cash being used to cash out current investors and some staff. The latest round of funding pushes Twitter’s value to $8bn, which is more than double the $3.7bn it was valued at in December.

The new round of funding comes as Twitter axes a number of product staff. Four staff are parting company with Twitter signalling the new broom of Jack Dorsey whose return to the company is as part of an effort to shake it up and get it focused on growth and product development.

As for the funding, AllThingsD reports that “along with basic funding needs, this is largely being done this way to give those with stakes in the San Francisco microblogging company an ability to monetize their privately held common stock and also to do this selling in a more organized — and legal — manner”.

The ability to pay investors is particularly important as Twitter has no plans to go public in the near future meaning that investors have no other way of realising their investment early other than this.

Is Twitter massively overvalued?

What’s interesting, of course, is that while its valuation has soared to $8bn its revenues have not. A Twitter investor recently told SAI that its valuation was “ridiculous”.

Twitter is expected to make less than $25om in 2011 and maybe only as much as $140m. Based on that figure its current valuation is at a revenue multiple of 50 times, which is madness.

It would need to hit revenues closer to $500m, according to SAI, for that to make sense. And is it going to achieve that with promoted tweets and trends? it seems unlikely.

News of this latest round of investment was recently reported in The Wall Street Journal, which also said that Twitter was working on a new “a new ad offering” although there are scant details of this as yet.

More details of the fresh funding came out last week in the New York Times last week, which had the inside track of the first part of the deal which will be a $400m investment for preferred shares by new and existing shareholders.

Those investors thought to be getting payouts will be JP Morgan and Russian firm Digital Sky Technologies, which is an investor in a number of high profile Silicon Valley firms including Facebook and Zynga.

Twitter staff exits

Techcrunch reports that those leaving Twitter are Kevin Cheng, Josh Elman, Anamitra Banerji (@anamitra), who started Twitter’s ad platform, and Jean-Paul Cozzatti (@jeanpaul).

Since Dorsey’s return, and Dick Costolo taking over as CEO, there has been a new energy at Twitter with a focus on product development and acquisition as it continues to search for ways to boost its revenues.

We’ve had a new version of Twitter search, news of Twitter’s own photo sharing app and the acquisition of Tweetdeck.