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instagram logoI’m hearing that Instagram, an iPhone photo application that’s attracting a lot of buzz, is raising a new funding round led by Benchmark Capital.

To be clear, my source is well-positioned to hear about the deal, but they aren’t directly involved, so you may want to classify this as a rumor. Last month, Caroline McCarthy at Cnet reported that Instagram was looking to raise money at a $20 million valuation, with Sequoia Capital positioned as the lead investor. I’ve emailed Instagram, Benchmark, and Sequoia for comment, and I’ll update if I hear back from any of them.

Instagram allows users to easily take photos, add filters and location information, and post them across multiple social networks. You can follow other users’ photo streams and comment on photos or say that you like them. I haven’t seen any user or download numbers, but it seems like Instagram is becoming the default photo-sharing app among many of the people I know in the startup world.

Benchmark’s social portfolio already includes Twitter and Quora, the question-and-answer service from former Facebook chief technology officer Adam D’Angelo. Sequoia, meanwhile, recently invested in blogging startup Tumblr — Tumblr is so photo-heavy that the two companies could be seen as potential competitors, though Instagram lets its users post their photos to Tumblr.

Back when the Instagram team was focused on location-sharing application Burbn, it raised $500,000 from Andreessen Horowitz and Baseline Ventures. However, Andreessen later invested in a photo-sharing app from Imeem founder Dalton Caldwell called Picplz, and he said he would take a more passive role in Instagram.

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