The current funding round, in which Instagram is poised to raise about $40 million, is considered a hot deal, and has drawn a lot of interest.
Instagram may face some unique challenges in trying to develop a business model, said one of the people familiar with the matter. Since the app is only available on a smartphone and devotes most of its screen to featuring photos, it lacks the real estate of a desktop site for displaying advertising.
Instagram doesn't yet offer its content on a website, unlike other popular mobile services such as Twitter and Tumblr. It also doesn't lend itself easily to e-commerce strategies, such as offering daily deals, which mobile apps like Foursquare are pursuing.