Introduction
The rapid advancement of technologies such as robotics, artificial intelligence (AI), quantum, space, and biotechnology is driving transformation in the commercial and defense sectors. Start-ups excel at commercializing new technologies, making their involvement crucial for accelerating defense technology development and deployment. While China advances its military-civil fusion policy, the U.S. Department of Defense (DOD) is accelerating engagement with start-ups and overseas companies to promote defense technology innovation.
Coincidentally, start-up ecosystems are emerging in Japan, a close U.S. ally, including in the defense sector. This opens new possibilities for U.S.-Japan defense collaboration and further strengthens the alliance. At the 35th U.S.-Japan Technology Forum in October 2024, an annual event that brings together leading U.S.-Japan defense-technology stakeholders, a record number of start-ups participated and many high-level speakers from DOD, the U.S. National Security Council, the Acquisition, Technology and Logistics Agency of Japan (ATLA) and the Ministry of Economy, Trade and Industry of Japan (METI) emphasized the importance of involving start-ups in bilateral defense cooperation. Both countries have advanced discussions about the potential for more defense industrial cooperation under the bilateral Defense Industrial Cooperation, Acquisition, and Sustainment (DICAS) Forum. Integrating start-ups into both nations’ defense ecosystems should remain a priority going forward.
Defense-Tech Start-ups and Alliance Cooperation
Understanding that the technologies that may decide future wars are being developed predominantly among commercial companies, the DOD has launched initiatives to enhance the acquisition of such technologies both domestically and globally. The Defense Innovation Unit (DIU) of the DOD updated its strategy last February and stated that it will expand its reach to the innovation ecosystems of U.S. allies and partners to source the best dual-use technology on a global scale. NATO also plans to introduce an accelerator program to foster collaboration with dual-use technology start-ups among its members.
Bipartisan concerns about declining competitiveness in the U.S. defense industrial base and national security risks in the supply chain will likely persist during the Trump administration. The Republican Party’s 2024 policy platform advocates for modernizing the military by investing in cutting-edge research and advanced technologies, as well as strengthening alliances by ensuring fair-share investment from allies in our common defense. From the business perspective, the intensifying global security crisis has driven up defense-related stock prices and attracted stable venture capital (VC) investment in U.S. defense technology. Various investors and start-ups anticipate a surge in opportunities under the Trump administration due to expected deregulation and expanded more efficient government procurement processes. President Trump nominated Stephen Feinberg, a billionaire investor with deep ties to the defense industry, to be the deputy defense secretary, and David Sacks, a venture capitalist, to be the White House AI and Crypto Czar. If the United States aims to retain the world’s most technologically advanced and well-equipped military, maintaining a positive stance on leveraging allied technologies is a logical and strategic approach.
Japan’s Budding Defense-Tech Start-ups
While the United States accounts for 42 percent of global arms exports, Japan has recorded only one case of exporting finished defense equipment to date, due to a long-standing institutional prohibition on arms exports that was not revised until 2014. Consequently, Japan had not nurtured defense start-ups or collaborated with U.S. counterparts, unlike the United Kingdom or Australia.
In 2022, the Japanese government allocated a budget of JPY 1 trillion (approximately USD 7 billion) to build start-up ecosystems under its Startup Development Five-Year Plan and introduced various unprecedented measures. The promotion of start-up businesses with innovative and advanced science and technology, namely “deep-tech,” is one of the pillars, and the current Ishiba Shigeru administration declared its support for research and development (R&D), innovation hubs, and human resource development for university-based, deep-tech start-ups. In fact, the number of university spin-off start-ups and the funding they attract are both on the rise.
These deep techs are expected to enhance Japan’s defense capability. ATLA operates the Innovative Science and Technology Initiative for Security program for universities and start-ups to support deep-tech research that will contribute to future R&D in the defense sector. ATLA and METI also established the joint promotion committee in 2023 to create opportunities for matching the Japan Self-Defense Force (JSDF) and start-ups. As a result of these efforts, the start-ups and VCs interested in the defense sector are steadily increasing. Notable examples include Metro Weather, which utilizes cutting-edge technology to predict changes in wind conditions; Terra Labo, which offers observation and analysis services using unmanned aircraft; and Preferred Networks, which provides innovative solutions utilizing deep learning and robotics technologies. VCs with strengths in deep tech, such as the gap fund of the University of Tokyo and the Incubate Fund, also joined the committee.
In Japan, there is growing recognition that the defense sector is an important market for start-ups. Reflecting such trends, some start-ups, accelerators, VCs, and large companies are already preparing for these business opportunities and approximately 40 start-ups and other private companies from Japan participated in the series of the annual U.S.-Japan defense industry meetings, driven by the positive attitude of both countries’ governments.
Industrial security, often cited as a challenge for Japanese companies participating in U.S. government procurement, has been gradually strengthened. ATLA formulated the Defense Industrial Security Manual, which consolidates industrial security rules, following the U.S. National Industrial Security Program Operating Manual. Additionally, Japan became the first Asian country to join the Multinational Industrial Security Working Group, a collaborative body for international industrial security best practices. Last May, Japan’s parliament enacted a bill to introduce a security clearance system for accessing classified information related to economic security, aligning the country with other Group of Seven nations. In short, the foundation for advancing U.S.-Japan defense technology cooperation is being established.
Potential for U.S.-Japan Start-up Cooperation
As the importance of defense technology cooperation between the United States and Japan grows, start-ups have been a missing player. However, it is obvious that involving start-ups has the potential to accelerate the utilization of cutting-edge technologies and the creation of a more resilient defense industrial base. What steps are most likely to foster collaboration?
One promising area is U.S. government procurement. Japan ranks third globally both in R&D expenditure and patent applications, with emerging deep-tech start-up ecosystems, and further, there is a well-established trade control system between both countries. The United States can leverage technologies and prototypes funded and developed by allies through bilateral and multilateral programs, aligning with the Republican policy platform’s goal of strengthening alliances by ensuring allies’ investment in common defense.
The DOD has already implemented acquisition programs to actively adopt advanced and superior technologies from other countries. The Foreign Comparative Testing (FCT) program helps U.S. military program offices procure defense articles from abroad by evaluating mature foreign technologies, and has experience of over 1,000 technological tests with about 40 countries. Among them, five projects are currently active with Japanese companies. As for relatively early-stage start-ups with prototypes, DIU opens the door for allies to apply for procurement through the International Prototype Awards and has already secured purchases from 10 countries.
There is another unique initiative funded by the Central Intelligence Agency: In-Q-Tel (IQT), a venture fund that supports start-ups from the very early stage and bridges their products to government procurement. It has invested in nearly 20 countries including Japan’s first fusion energy start-up in 2024. Notably, both DIU and IQT dispatched representatives to Japan in 2024 to meet with start-up stakeholders and to seek the next deals.
Another area of potential is applied research in deep tech for commercialization. Last October, the Defense Innovation Science and Technology Institute (DISTI) was established within ATLA to harness various advancing technologies and create innovative functions and equipment that will transform future warfare. The institute is a reference to U.S. institutions such as the U.S. Defense Advanced Research Projects Agency (DARPA) and DIU and already launched several breakthrough research projects. DIU and DISTI will explore joint project opportunities through the prize challenge for defense-tech start-ups. Additionally, Japan’s Global Startup Campus is set to launch in Tokyo, aiming to invite U.S. researchers and VCs and to foster deep-tech start-ups, supported by an initial research funding budget of JPY 57 billion. U.S.-Japan defense technology collaboration is gaining momentum through joint initiatives.
Furthermore, start-ups from both countries will have opportunities to be integrated into each other’s supply chains and collaborate with large companies on joint development projects. They may also participate in government initiatives, ranging from research to implementation, although establishing the necessary framework may take time.
Recommended Efforts
There is great potential for U.S.-Japan start-up cooperation but also hurdles both in the public and the private sectors that must be cleared to make this potential a reality.
1. Establishing Information-Sharing Channels and Strengthening Information Dissemination
In addition to ongoing agreements between both nations’ leaders to foster defense-tech cooperation, field-level channels are crucial to deepen mutual understanding of prioritized technologies and procurement processes. Involving start-ups in the existing U.S.-Japan defense dialogue is an effective way to create a multi-layered and broader base of participants. Establishing a dedicated function within the Japanese government to share U.S. procurement information with industries and help them accumulate business experience in the U.S. market would be highly beneficial. ATLA and METI should enhance the joint promotion committee to serve this purpose. Awareness of U.S. initiatives like FCT, DIU, and IQT remains low in Japan, highlighting the need for the United States to better disseminate information and introduce clear and attractive procedures for start-ups. At the same time, Japanese start-ups must also proactively share information about their technologies and applications by participating in defense-tech exhibitions and stakeholder forums. Major Japanese companies with extensive experience in the U.S. market can serve as a vital bridge among the stakeholders.
2. Aligning Information Security
It is crucial for Japan to uphold an information protection system equivalent to those of its allies and partners by establishing the nation’s defense framework against cyberattacks, known as active cyber defense, and addressing the Cybersecurity Maturity Model Certification 2.0, released by the DOD last October. ATLA should continue to assist start-ups to meet these security criteria by providing guidance and financial support. Strengthening Japan’s information security posture will enable both countries to update export control policies which hinder smooth joint R&D and technology transfers, especially in dual-use technologies.
3. Overcoming Defense Industry–Specific Challenges in Japan
Japanese start-ups and VCs must overcome the academic or financial mindset that discourages involvement in military-related matters, as some VC-limited partner agreements or research awards prohibit weapon-related business. Strengthening dialogues between ATLA and start-ups and VCs will contribute to cultivating human resources with a solid understanding of the defense sector, reducing aversion to defense activities, and gaining a better understanding of the private sector’s dynamics. ATLA retirees and JSDF veterans in the private sector could bridge such dialogues with support from the Japan Association of Defense Industry and the Society of Japanese Aerospace Companies.
4. Strengthening Japan’s Deep-Tech Ecosystem Itself
Japan’s deep-tech start-up ecosystem remains underdeveloped, with limited pathways to commercialize research projects through start-ups and only two deep-tech unicorns compared to 979 in the United States. Forming start-up support teams within universities and attracting deep-tech-focused overseas VCs are essential steps. For the Japanese government, it is essential to expand and utilize the Small Business Innovation Research (SBIR) scheme including the Innovative Science and Technology Initiative for Security Program, and accelerator programs such as the J-StarX Dual Use Technology Accelerator. Additionally, these programs should offer participants greater opportunities to connect with the U.S. market or stakeholders.
Conclusion
The rise of commercially driven technologies through start-ups, Japan’s efforts to build robust deep-tech start-up ecosystems, and the shifting perception of defense as a viable business all create an opportune momentum for U.S.-Japan collaboration in the defense and dual-use sectors. Integrating start-ups into traditional industries can diversify the defense industrial base, speed up innovation, and strengthen supply chain resilience. To seize this unique opportunity, continued efforts from both countries are essential. Commitment from President Trump and Prime Minister Ishiba at the upcoming summit will further encourage start-ups and accelerate technology cooperation.
Makoto Tsujiguchi is a visiting fellow with the Japan Chair at the Center for Strategic and International Studies (CSIS) in Washington, D.C., from the Japan Business Federation. Moyuru Tanaka is a visiting fellow with the Japan Chair at CSIS from the Acquisition, Technology, and Logistics Agency in Japan’s Ministry of Defense.
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