It's amazing that the Instagram guys started negotiations at $2B. I guess when you're talking to FB you just pick a huge number out of the air. Why not $5B?
It's in the article (see google cache). They were about to be valued at $500M in the next round of investment, during the next week. Zuck had to move fast, and he did. He bought them 2 times the supposed valuation, which is probably what Instagram expected.
(PS: Negotiation 101, start with a number 2x bigger than what you expect)
(PS: Negotiation 101, start with a number 2x bigger than what you expect)