Snapchat is clearly built to sell, and this round is all about getting more experienced VCs on board to shop it to their buddies in the large tech companies. Comments like these usually get deleted by the VC moderators of HN, so you can copy-paste it if you want to reference it in a reply.

Unfortunately they are not and will not be the "next Instagram" with their current product offering (in my humble opinion). They don't even come close to having the same kind of value or value potential that Instagram (the product) did when it was bought. It's also very difficult to monetize a product like Snapchat just by its very nature (of destructible media). Now of course I could be wrong about all of this, and if so, feel free to enlighten me.

I think what's more plausible is the possibility that the extra money is going towards more long term plans and product expansions.

Only thing I could find quickly (2012-05-12):

http://techcrunch.com/2012/05/12/snapchat-not-sexting/

Spiegel is also developing an Android app. And of course, they’re looking for a way to make some money off the app. While he said they don’t currently have a revenue model, Spiegel said they are “having ongoing discussions” about it.

“We didn’t think we were ever going to raise venture capital so we were planning very early on to generate a revenue plan,” he said.

I believe it might be ads. I can't remember exactly where I read it, but they are expanding their sales team with the money they raise.