We've been building businesses in our society for years and years, how could 'startups' be considered an immature industry?
http://paulgraham.com/growth.html
He eloquently explains that startups are different from "normal" businesses and VCs invest in them because of the possible rate of growth. This kind of business has only been very common in the last few decades in the tech industry. And has probably been amplified in the last two decades by the internet.
Instagram was started with the hope that if they gain enough users, they will be able to figure out how to monetize those users. It's not much of a business today, because they still have not figured out a way to do that.
Those who have invested in Instagram either believe they will be able to figure that out, or they believe they can sell it to someone who believes they can do so.
This is no different than if I were to open a convenience store. I open it -- I'm losing money on rent, the renovations, inventory, etc, etc, etc -- I hope that after a certain amount of time I will be able to attract enough customers to make up for that.. but until I do, I do not have much of a business.
In a way, Instagram is at the opening stage. They're building a user base (what would be the store in my example). And when they figure out how to monetize the users, they will 'open for business' and accept their first customers (probably advertisers.. but they might come up with something else).
There is no contradiction, and there are plenty of analogues in history.