Can Yahoo nab Foursquare for $125 million?

You have to give Yahoo an A for effort, if perhaps the ultimate grade in its ongoing quest to buy hot mobile start-up Foursquare is an F.

While its founder Dennis Crowley--who controls a large chunk of the shares of the start-up--has so far turned down several $100 million-plus offers from Yahoo, sources said its new head of mergers and acquisitions Andrew Siegel is back in New York today still trying to convince him to sell.

So far, especially because the effort has dragged on for a while now and Yahoo has not made an overwhelming show of financial might, Crowley has appeared to have developed a case of cold feet about marrying the Internet giant.

Meanwhile, two powerful venture firms--Andreessen Horowitz and Khosla Ventures--are also putting lucrative new funding deals on the table, trying to entice Foursquare to remain independent and turbocharge its fast-growing status update service.

Other big firms have dropped out of the race, though sources said more are now sniffing around, such as free-spending Russian moneybags, Digital Sky Technologies, which has already sunk its copious funds into social networking giant Facebook and gaming powerhouse Zynga.

Its selling point is freedom, the ability to sell for more later and perhaps a more modest payout for talent, including Crowley, by buying some of their common shares. Its valuation is hovering around $100 million.

"Why sell now, when they are on a roll no one is going to catch them for a year at least," said one person involved in talks with Foursquare. "There is a lot of benefit in waiting to cash in totally."

The choice for Crowley: take the big pile of money from Yahoo--which is offering all cash, giving Crowley a huge windfall--and run or double down with VCs.

"Yahoo should just pay a huge premium and scare away the VCs to become relevant among the cool kids again," said one person close to the situation. "In my mind, it's a litmus test for Yahoo."

Yahoo is well known in the tech space for hemming and hawing over acquisitions. Dithering over price, it famously lost a near-complete purchase of YouTube to Google, which swooped in with a bigger and cleaner offer overnight.

In addition, as many big companies have, Yahoo has bungled purchases of hot start-ups before, such as Flickr, the pioneering online photo service.

But CEO Carol Bartz has recently made some significant noise about Yahoo starting to engage in some aggressive M&A to attract talent and inject innovation into Yahoo. Internally, sources said she has told staff that Yahoo had to start engaging externally.

She has mentioned mobile start-ups specifically, and Foursquare is indeed among the hottest in the space, offering its growing base of users an ability to "check-in" from a variety of places.

The location-based services arena is heating up, with multiple competitors to Foursquare, such as Gowalla, as well as recent efforts by Facebook and Twitter to enter the space in a big way.

Still, Foursquare is the start-up of the moment among the digerati, striking deals with a wide range of partners, as well as tech giants such as Microsoft.

Thus, it has attracted a lot of look-sees, from AOL, Twitter, and Google, although none have made an effort to buy Foursquare.

Even Facebook has contemplated the start-up, although it is more likely to try to replicate its own version of Foursquare, which is could announce at its F8 developers event next week. Twitter has also indicated it will be offer similar features at its own conference this past week.

The challenge for Foursquare's Crowley will be in the timing and deciding if he can look such a large gift horse in the mouth.

"It's an insane offer, in a lot ways, big enough that we all have to take it seriously," said one person close to Foursquare.

Insane is what some think Yahoo has to be. "Yahoo needs to kneecap everyone near Foursquare," said one source with knowledge of the situation. "This is a strategic purchase, not one based on any metric of revenue or users, so it's just as crazy at $100 million as $150 million."

Well, a little crazier, but you get the point.

Yahoo declined to comment and I have an e-mail into Foursquare, which has yet to respond.

Silicon Alley Insider had first written about Yahoo's interest in Foursquare about two weeks ago.