For anyone who has read Blank's The Four Steps to the Epiphany you will appreciate that money doesn't always equal success.

For those looking for an introduction, the first four chapters are available online: http://www.stanford.edu/group/e145/cgi-bin/winter/drupal/upl...

In the early chapters where Blank argues the importance of the customer development approach to business (ie knowing your customer first before building your product) versus the traditional product development model (ie building your product first, only to find out later you have no customers).

He cites furniture.com of the dot com days that raised heaps of money but failed badly.

Color is probably another great example. They raised money but didn't consider the market.

Is Instagram the same thing? They obviously are a popular product. However is the freemium model adequate? Do the userbase warrant that valuation? How do they generate revenue? Are they a sustainable business?

This blog touches on the importance of conversation rate: http://blog.asmartbear.com/price-vs-quantity.html

Will Facebook generate sufficient advertising revenue from Instragram functionality?

Don't know. But rather their money than ours!