RockYou, the fast-growing online widget company — that lets you post images and slideshows in social networks and other web sites — has apparently hit a major juncture in its decision to raise funding or not. And I’m wondering if it may have decided to go a different route.

The company, which is in a cut-throat competition with Slide, needs to raise cash — or sell. It isn’t profitable, and needs to keep up with Slide, which raised $50 million at a valuation of $500 million in January — a humongous financing that was considered a coup, considering how little cash the company is generating and the anemic economy (not great for advertising revenue).

We’ve learned from several independent sources that, as of about two weeks ago, RockYou had attracted some interest from investors at a valuation of $400 million, including from venture capital firm Interwest Partners. That valuation level matches the RockYou’s initial plans, which leaked out two months ago, of wanting to raise money at a $400 million valuation. But at that level, RockYou still lacked a “lead” investor, or one willing to make a sizable investment and round up enough other investors for a total of between $50 million and $70 million in funding. What’s more, the offer, we’re hearing, carried some additional terms that weren’t very attractive to the company. Two other investors offered a $200 million valuation with more favorable terms. So the goal – again, this was two weeks ago — was to hold out for a public market investor that might lead the round at the higher valuation.

However, here’s the twist: I got in touch with the company yesterday, and initially was told that the reports I’m hearing are “old” and “inaccurate.” The company suggested it had taken a change in direction, and indicated that some sort of announcement is close. In a second call yesterday, I reached co-founder Lance Tokuda directly. He wouldn’t comment on the fund-raising effort, said reiterated the fundraising news I’d heard is now inaccurate.

It supposedly could go after some debt financing, a la Facebook, but that is dangerous, because it assumes future cash flow.

Or could it mean that the company has decided to heed the advice we’ve heard it was getting from some of its investors? That is, consider a sale instead. Why not try to sell for $200 million or so, a level where each co-founder would make tens of millions, and still return a profit to its main investors — Sequoia, Partech and Lightspeed? If RockYou really did raise money at a $400 million value, this would put immense pressure on it to reach a $800 million valuation before selling (to give investors a solid profit), which would be extremely difficult to do. If they were to fail, never get revenue, and sentiment turns sour, they’d risk losing everything.

So this comes down to a really tough call, and it will show what sort of guy co-founder Lance Tokuda is. I’ve heard he is incredibly ambitious, determined to beat Slide. On the other hand, he’s human too, and his “cautious” gene has got to forcing him to consider the sale option.