Welcome to the Hotel California: Here's What's Really Happening in the Foursquare Pig Pile

No, Facebook is not in serious talks to buy Foursquare. Yet.

No, Microsoft is not poised to snap up the social location start-up, beyond a cursory should-we-look query to itself. Yet.

No, there is no longer a crazy bidding war going on among major venture players in Silicon Valley, all waiting with bated breath for Foursquare founder and CEO Dennis Crowley to make a decision about which of them he will deign to take a big pile of money from.

In fact, Andreessen Horowitz partner Ben Horowitz was entirely correct when he told BoomTown in an interview earlier this week that his firm was dropping out of the race to fund the company:

“This is playing out too much in public and clearly someone has an interesting agenda here, so this is not something we want to participate in.”

Interesting indeed, although cloddish is probably a better word for what the simple process of deciding on funding versus selling has turned into.

New York-based Foursquare, which hit one million users yesterday and is unprofitable, lets its users “check in” from a variety of locations.

It’s an innovative and entertaining concept and a lot of fun, unless you are among those trying to do a deal with Foursquare.

From VCs to Facebook to Yahoo (YHOO)–the only serious bid to acquire Foursquare so far–sources close to every single player mentioned in the hubbub around the start-up expressed stupefaction about the confusion Crowley’s endless Hamlet act has resulted in.

And, in no small measure, annoyance too.

“It’s hard to make rivals all agree on one thing,” said one person close to the situation. “But this just became a pig pile.”

Indeed, that was the impetus for Horowitz speaking on the record about the experience of dealing with Foursquare, a move that was unprecedented.

“If the process was changed, we still like the company,” said Horowitz. “But since it has been long and undefined, it is prone to manipulation.”

While some have suggested that this was just sour grapes on the part of Andreessen Horowitz because Foursquare decided to pass on a lower funding offer it made, others involved–including rival VCs–applauded the move.

“Foursquare is being just as vague and unclear to us, which I think means they don’t know what they want,” said one VC, who has been considering funding it. “No one minds losing out to someone else, as much as feeling like you’re being played.”

The game got another boost today by rumors that Facebook is intently interested in buying Foursquare and delayed its announcement of location features at its f8 conference Wednesday because the social networking site did not want to scotch the impending deal.

Actually, no.

What is true is that Crowley has been to visit Facebook execs, including CEO Mark Zuckerberg, and there were only cursory discussions about a range of possible ways to work together, including a plan to federate third-party location services at the social networking giant.

Also, why not meet?

“It’s was a free look,” said one person with knowledge of the chitchat, the kind that happen all the time between Facebook and companies. “You always say yes when people want to talk, because you can learn a lot.”

As to a purchase: Unlikely at the price of $100 million-plus that Yahoo offered, if ever.

“Yahoo needs a solution in the mobile location and local space, because they have nothing,” said another source of the build-or-buy decision. “Facebook has all the tools it needs, as well as 500 million users used to updating their statuses, so what Foursquare is doing is not hard to replicate.”

As for Microsoft (MSFT), sources said, it, as well as companies like Nokia (NOK), simply have had their interest piqued by all the noise surrounding Foursquare.

That is also typical around hot start-ups, and perhaps more so with Microsoft, since it recently signed a deal with Foursquare to integrate its customer data with the Bing search service’s map apps.

So what’s left? Well, Silicon Valley VCs, of course, who are always interested in a deal.

Despite negligible revenue, Foursquare raised $1.35 million last August, valuing it at $6 million.

Foursquare’s current VCs include O’Reilly AlphaTech Ventures and Union Square Ventures, as well as a spate of well-known angel investors.

New VC valuations have hovered from $50 million to $80 million.

But both Accel Partners and Redpoint Ventures, sources said, do not have active talks going on with Foursquare.

One wild card: Free-spending Russian moneybags Digital Sky Technologies, which has already sunk copious funds into Facebook and games powerhouse Zynga.

For certain, after Andreessen Horowitz pulled out, the last one standing seems to be Gideon Yu of Khosla Ventures.

And while the eager firm has made an offer, sources said, it has yet to hear back from Foursquare, which is taking its sweet time mulling things over, which can’t make Yu happy either.

In other words, mangling the old Eagles song, “Hotel California”: You can check in any time you like, but you can never leave.

So while Crowley searches for the most lucrative exit, let’s enjoy the Eagles classic in this video:

EAGLES – HOTEL CALIFORNIA
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