2016 will be Silicon Valley’s hangover year

2016 is going to be an unusual year for the tech community. In fact, it will be so different from 2015 that we’ll look back like Alan, Phil, and Stu from “The Hangover” and wonder what the heck happened. What looked hot and incredible in 2015 will look like smushed Gray’s Papaya or Hot Doug’s on the street from the night before in 2016.

I believe most analysts expect a financial downturn, but we don’t know how severe it will be. Michael Burry, who predicted the last big one and the main character in “The Big Short,” believes there will another big one, so I am personally leaning towards a severe economic downturn.

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Anyway, first is a review and grades of my predictions from last year:

“Outflow of security-related startups”  Score: A+

Rather than listing companies, I just want to state that by September 2015, over $2.3 billion had been invested into security-related startups according to data from CB Insights and Bain Capital Ventures. I assume the year-end total is above $2.5 billion, so I would say there has been a bit of a startup craze in this space. Yeah, I nailed this one.

“Uber’s valuation flattens”  Score: D

Well, I don’t get an “F” at this stage since Uber’s valuation isn’t finalized. It is raising now at a $62 billion valuation, but I still called this incorrectly.

“Rise of machine learning”  Score: A

Artificial intelligence and machine learning really did enter the mainstream market in 2015, so I give myself “A”. I’m tempted to give myself another A+, but most of the big news came at the tail end of 2015. Toyota committed to investing $1 billion into artificial intelligence and OpenAI launched, which is a nonprofit with $1 billion in backing from Elon Musk, Peter Thiel, Sam Altman, and others.

Even from our global seed-stage fund, we have seen numerous AI/machine learning startups trying to disrupt the insurance industry, drug discovery, manufacturing, and other sectors. We’ve seen multiple approaches and pitches for funding in many verticals to the point that I was getting blurred vision and thought I was seeing double since most AI algorithms from top teams are similar, with the only differentiation being the data sources and UX/UI of the applications.

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“Xiaomi becomes the third largest mobile phone manufacturer in the world”  Score: D

Xiaomi was stuck at number four according to IDC, with 5.6% market share, so I was too bullish on its prospects for 2015. I will say as an excuse that it expanded into other product verticals, such as air filters and fitness bands, which distracted its phone business.

Now for my 9th annual predictions. Here’s what’s coming in 2016:

1. We’ll see 10 or more dead unicorns in 2016

This is expected, but I’m putting a number down. At least 10 unicorns will go under in 2015. If you consider that there are 144 unicorns in the world (according to CB Insights), you may think I’m being a bit weak on this prediction. I want to say 20, but I’m no longer a daring entrepreneur, so I’ll stick with 10.

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I believe some replays from the ’90s, such as today’s Kozmo/on-demand delivery startups, cannot continue to operate under slim or negative margins. If Google Express and Amazon Fresh are probably losing money on their delivery services, it’s difficult to see how the upstarts will continue to survive beyond their cash.

As Stu from ‘The Hangover” might say, these replays are basically surviving on “sofa pizza” at this point.

There are also consumer apps still seeking to find sustainable business models that will run near their end in 2016.  This year isn’t going to be pretty for the startup world, but a part of the startup lifecycle.

2. Blockchain tech will go mainstream

Industry pundits tend to overstate this point at times, but I am one of those that believe in the longevity of blockchain technology as a universal ledger more than Bitcoin as a currency. 2016 will be the breakout year for blockchain technology as it moves beyond Bitcoin to other aspects of business and financial markets that need to track the exchange of value between entities.

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We’ve already seen some new approaches to blockchain technology, but the Open Ledger Project is one to keep an eye on. It’s a collaboration between various big corporates, such as IBM, the London Stock Exchange, JP Morgan, State Street, Cisco, Wells Fargo, Intel, and others. It is managed by the Linux Foundation, which is a non-profit, and they seek to create an optimal blockchain technology for large corporates around the globe.

3. IoT uptake in the home will remain slow

I’m a big believer in IoT, and so is our team at SparkLabs Global, but I believe home hubs, security, energy management, and other IoT solutions will have a unspectacular 2016. Unless, there is a very strong service component to an IoT play, it seems the convenience factors haven’t outweighed security and other concerns yet. 2016 will be a year filled with educating and marketing pushes by home IoT companies.

Also, as many IoT startups have found out, battling for shelf space at major retailers isn’t an easy task. Your product has to be really good to displace one of the incumbent products at Home Depot, Target, Ace Hardware, and others retailers.

4. Machine learning will remain in the trunk

Yes, I sound a bit schizophrenic since I predicted machine-learning’s rise for 2015, but I believe this technology just needs to marinate some more and prepare to jump back out in 2017 like Mr. Chow in “The Hangover.”  For example, we have seen a fair number of machine learning startups related to industrial Internet of Things, but the industries they are targeting don’t seem ready — or else the business model hasn’t matured yet — to generate significant revenues.

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5. Google will buy Snapchat

I had to have one crazy prediction to stop myself from sounding like the Grinch, so I’m predicting Google will acquire Snapchat to stay relevant. It still doesn’t understand social, and self-driving cars will be the future, but the advertising engine at Google’s core is being threatened by Facebook’s empire of Messenger, Instagram, WhatsApp and its core property. Google needs a youth injection to leapfrog Facebook’s growing influence in the next generation of online users.

What are your predictions for 2016? Feel free to comment or email me with your thoughts and feedback. Happy New Year!

Bernard Moon is cofounder and General Partner at SparkLabs Global Ventures, a global seed-stage fund, and cofounder of SparkLabs, a startup accelerator in Seoul, Korea. Follow him on Twitter.