Five Funding Trends to Watch in 2012

Cornell University will build a science and engineering campus on Roosevelt Island, between Manhattan and Queens.

Image: Cornell

The new year could be a confusing one in the venture capital game. Will VCs have a hard time fundraising? Will a giant tech bubble burst and destroy everyone in its wake? Here are five trends that most everyone can agree on.

1. New York will rule: New York has spent the last several years quietly growing in popularity as a startup hub, but now its secret is out of the bag. In 2011, it surpassed Boston as the second largest recipient of venture capital funding (behind the Silicon Valley, which still reigns supreme), and industry watchers say it will only continue its winning streak. As 2011 drew to a close, city officials announced what they hope will boost the city's tech cred even further—a new Cornell University science and engineering campus on Roosevelt Island, just east of Manhattan.

2. Money will flow internationally: A number of venture capitalists funneled money into startups overseas in 2011, or increased their holdings in other countries. China in particular was on track to set a funding record with venture capital investing increasing 84 percent during the third quarter, according to DowJones VentureSource. The interest in China is expected to increase, and other countries might become popular as well. Brazil could be one of them.

3. VCs Will Become Giants: Consolidation of venture capital funds could be in store, although how much is up for debate. That means the well-known, best performing large venture firms are expected to grow even larger as pension funds and university endowments transfer more money to a "safe haven," rather than take a bet on a fund that's less well-known. That's particularly true as economic turmoil continues.

4. Design Will Matter: It used to be that the coolest thing was to log on to Amazon, find a book, and purchase it online. But now that we've all become used to that novelty, design and the ease of the customer experience is going to matter much more for startups, and that trend will show up in the type of companies that venture capitalists are funding, according to experts. Read: Pretty will matter just as much as content.

5. More Large Companies Will Become VCs: Companies ranging from General Motors to Merck to American Express have all jumped into the startup funding arena in the last two years by launching venture capital arms. That trend is only expected to continue, particularly as some larger companies cut back on their research and development spending. Why not just fund a startup instead?