by James A. Martin

The 10 biggest startup opportunities in 2016

Jan 07, 2016
Consumer ElectronicsCyberattacksFinancial Services Industry

The New Year promises to usher in a new set of tech startups looking to capitalize on the rise of enterprise wearables, counterterrorism, finance and payments tech, and even private space exploration.

The year 2015 was all about drones, virtual reality, 3D printing, and the Internet of Things (IoT).

This year, venture capitalists and industry observers say the tech world should expect more of the same. “Most hot startups in 2016 won’t be trying to lead revolutions or usher in whole new industries,” says Igor Shoifot, an investment partner with TMT Investments. “Instead, they’ll be enhancing existing technologies, products, services, or transactional ecosystems by saving users time, money, effort, and helping them make better choices more easily.”

However, the New Year has a few potential technology surprises in store, including the “Uberization” of manufacturing and mobile ecommerce in emerging markets. Here are 10 of the hottest technology startup categories, trends and opportunities (ranked in no particular order) experts expect to see in 2016.

1. Wearables in the enterprise

Today’s consumers already embraced wearable technologies, such as Fitbit and other activity-tracking products. In the enterprise, however, the wearables market is still “nascent but shows promise,” according to Ludo Ulrich, head of startup relations for Salesforce.

“As one of the hottest technology segments, wearables can be a true strategic tool that improves business performance,” Ulrich says. “Wearables are becoming more present in the workplace and stand to benefit multiple industries and disciplines such as field service, retail, healthcare, sales, and marketing.” A 2015 Salesforce Research survey found, for example, that 79 percent of early adopters think wearables are or will be strategic to their company’s future success, and 86 percent plan to increase spending on wearables during the next 12 months.

2. Consumer IoT and ‘smart home’

“Smart home” devices, including Google’s popular Nest thermostat, aren’t new. However, lingering consumer concerns about the security of IoT devices in the home hindered the adoption of such gadgets, especially after BuzzFeed featured some high-profile hacks in a story titled, “7 creepy baby monitor stories that will terrify all parents.”

“People were scared to connect smart home devices in 2015,” says Shaun Arora, cofounder and general manager of hardware accelerator Make in LA. “As consumers have more widely adopted devices, including wearables, the connected home has become less of an issue. People want everything from their cars to their blender to connect to each other and monitor efficiency in the same way it has become common to track heartbeat and steps.”

Amazon’s Echo smart home assistant, dubbed “Siri with a speaker,” is a successful example of the intersection between voice-based OSes and IoT devices, a trend that’s expected to gain deeper traction in 2016, according to Chris Haroun, a partner at VC firm ARTIS Ventures. Advances in voice-input technology in mobile devices and automobiles “will be particularly interesting to watch” in 2016, Haroun says.

“Why do we need to see our OS? Why can’t OSes be audio-based and follow us from one location to another?” Haroun suggests “the dominant OS of the near future will be voice-based and will run concurrently on our smartphones via Apple’s Siri, Google voice products, speaker systems like the Amazon Echo, or on our computers using Microsoft’s Cortana.”

3. Consumer privacy protection

As the adoption of smart home technology increases, consumer concern about what happens to the data their gadgets collect grows accordingly, according to Stuart Bailey, founder and chief scientist at network security service provider Infoblox.

“Even as consumers strap more wearable fitness trackers to their bodies and install smart appliances, thermostats and multimedia centers in their homes, they’re also demanding more control over who has access to the information they permit those devices to collect,” Bailey says. “Meeting the challenge of helping companies collect that information while also guaranteeing users’ privacy creates an excellent opportunity for tech entrepreneurs in 2016,” especially those who introduce “new approaches” to proactively guard consumer privacy.

4. Counterterrorism technologies

The September 11, 2001, terrorist attacks in New York City led more startups to build safety and evacuation technologies, according to Moshe Hogeg, cofounder, managing partner and chairman of private VC fund Singulariteam. The recent terrorist attacks in Paris and San Bernardino, Calif., in late 2015 will similarly motivate startups to provide “solutions for counterterrorism activities” in 2016, he says.

“Governments will be looking to support technology that can protect them from such attacks,” according to Hogeg, and startups poised to help with security will thrive in 2016. “You can already see a trend with smart cities that are looking for command control systems” to help prevent terror attacks, he says. 

The battle against terrorism will also increase interest in “robots that can spare human lives” in hostage situations, according to Hogeg. “The relevancy of current affairs is making waves, and the urgency for governments to protect their citizens will set the trend” and influence where the 2016 VC money goes, he says.

5. Cybersecurity services to protect enterprises

Malicious hackers and cybercriminals “are continually getting more sophisticated, requiring new ways for companies to protect themselves,” says Theresia Gouw, cofounder and managing partner with Aspect Ventures

As soon as new security solutions emerge, hackers begin to find ways around them. “The problem with the cybersecurity industry is that hackers always seem to be one step ahead,” Gouw says. “There will never be a silver-bullet solution, which means lots of opportunities for innovation.”

In 2016 and beyond, the security world will continue to transition away from on-premise security appliances and products, which can be expensive and too complex to maintain, according to Gouw. Instead, a movement will take place toward “cloud-centric security offerings that simplify the network architecture, making it easier to deliver security across an increasingly distributed and mobile enterprise,” she says.

6. Financial tech in emerging markets

In 2015, financial tech, a.k.a. “FinTech,” startups such as peer-to-peer money transfer service Transferwise changed how people move money across borders, and startups including Stripe enabled merchants “to easily accept new forms of payment,” according to Ethan Pierse, a France-based managing partner at Hong Kong VC firm, Nest. This year will bring “many new services to the world’s unbanked” in developing regions such as sub-Saharan Africa and parts of the Middle East and Latin America, “as well as new disruptions in lending and payment solutions for the United States and Europe.” 

In Africa and Asia, advances in financial tech far outpace other technologies, according to Pierse. “You have Africans who may not have reliable electricity, a bank account or a physical address as we know it, ordering and paying online through mobile phones,” he says. “Entrepreneurs in these geographies are rapidly building cutting-edge telecommunications networks from scratch, without having to work around legacy equipment because there’s no existing service provider. The innovations we’re seeing today aren’t necessarily in the creation of new tools like the smartphone, but the creation of powerful new use cases and applications for these tools. 

7. Digital health and Big Data

The year 2016 will bring more services and innovations designed to improve digital health record storage and access, provide online mental healthcare services, and create or further develop health diagnostic tools, such as “predictive cancer risk technologies,” according to Pierse.

This movement will result in more opportunities for companies that “create disruptive solutions” to make sense of big data, “whether it’s dramatically faster DNA sequencing and related therapies, speeding up analysis of clinical trials of new medical treatments, or machine learning that enables deep analysis of these huge new datasets,” Pierse says.

8. The ‘Uberization’ of manufacturing

Digital manufacturing methods, coupled with cloud-based design and simulation tools, “have the potential to democratize manufacturing and allow new entrants as well as interesting business models, like ‘Manufacturing as a Service,'” says Karen Kerr, senior managing director of advanced manufacturing at GE Ventures.

As a result, Kerr expects to see the “Uberization” of contract manufacturing and the supply chain in 2016, which will be accelerated by sensors and cloud technologies that allow “end-to-end visibility into supply chains and logistics.” Startups could also begin to replace freight forwarders, the traditional middlemen in manufacturing and supply chains, in the same way online travel services Kayak and Expedia squeezed out many travel agents.

9. Autonomous cars

Though still years away from mainstream use, self-driving car technology is expected to be a hot startup category in 2016, thanks to “many incredible beta developments in the self-driving car market,” according to ARTIS Ventures’ Haroun. 

Despite safety and other concerns about self-driving cars, “there are so many long-term benefits, including environmental, safety, health, family life-balance, geopolitical and overall economic benefits,” he says. “Self-driving cars will also be materially beneficial to lowering inflation, as we’ll spend less money on gas, repairs and real estate.” Haroun suggests software startups in the autonomous car market will gain traction in 2016, but the real impact will be felt “in the next few decades.”

10. Space exploration

The race between Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin will result in the creation of smaller companies that build technologies to complement and support the two space exploration startups, according to Hogeg of Singulariteam, which invests in Effective Space Solutions, another rival space startup. Though trendsetters such as Musk and Bezos are energizing interest in the “commercial space age,” some VCs will be wary of funding such startups because “the horizon for income is so far off,” Hogeg says.