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Gossip explodes over photo app Instagram

Sources say that the gimmicky photo-filter iPhone app is seeking a $20 million valuation as it puts together its Series A funding round.

There's a lot of chatter right now about Instagram, an iPhone app for adding artsy filters to photos and sharing them across various social-media networks, which has taken the early-adopter crowd by storm and courted heavy investor interest in the mobile photo-sharing niche.

A Thursday New York Times story revealed that investment firm Andreessen Horowitz, which has a stake in Instagram, just led a $5 million funding round for the parent company of competitor Picplz--which in turn caused a blogger at Business Insider to wonder whether the apparent conflict of interest indicates that Instagram has been sold.

CNET has learned from multiple sources that Instagram is actively putting together a round of Series A funding and that it's seeking a valuation of about $20 million, a sizable figure for a company that's currently restricted to a single mobile platform and has no source of revenue yet. The size of the round and the investors involved remain cloudy, though one source hinted to CNET that Sequoia Capital is positioned to be the lead investor. (That's very much a rumor, and Instagram founder Kevin Systrom declined to comment.)

The acquisition rumors started primarily because of the fact that Andreessen Horowitz, which invested in Instagram's seed round when it was still a location-based "check-in" service called Burbn, is now backing competitor Picplz. Founded by the creator of ill-fated music sharing service Imeem (which quietly died in a fire sale to MySpace), Picplz already has an Android version available in addition to iPhone and offers similar quirky filters for photos.

That's not to say Instagram isn't also being courting potential buyers. Instagram's founders are rumored to have already met with Facebook founder Mark Zuckerberg, who's been snapping up start-ups with talented founders left and right these days, usually shutting their products down as part of the deal. (Don't tell the thousands of Twittering cool kids who say they're now addicted to Instagram.)

And Instagram clearly has a talented founding team in Systrom, a former Googler, and former Meebo engineer Mike Krieger. The appeal of Instagram is more about the user interface and technology behind it than the fact that it can make terrible camera-phone photos look aesthetically pleasing--filter apps, after all, are nothing new (CameraBag and Hipstamatic come to mind). Much of its content both downloads and uploads in the background while the user is performing other tasks, making the entire experience significantly speedier than your average iPhone app.

The choice between building Instagram into a real company or making a quick buck on it while it's hot may be a tougher one than it looks, While half of Silicon Valley seems dead-set on getting a piece of Instagram early on, the other half seems to think it's going to be a fad that won't last--so it's likely that the founders are hearing more than a few bits of advice to cash out early.