The rapid evolution of technologies like robotics, artificial intelligence (AI), quantum computing, space exploration, and biotechnology is reshaping both commercial and defense sectors. Start-up companies are particularly adept at bringing new technologies to market, making their involvement critical for accelerating defense technology development and deployment.
In this context, the U.S. Department of Defense (DOD) is actively seeking partnerships with start-ups and international companies to foster innovation in defense technology. Simultaneously, Japan, a key U.S. ally, is seeing the emergence of vibrant start-up ecosystems, including in the defense sector. This convergence presents new opportunities for U.S.-Japan defense collaboration, further solidifying the alliance.
At the 35th U.S.-Japan Technology Forum in October 2024, an annual event that brings together leading stakeholders in U.S.-Japan defense technology, a record number of start-ups participated. High-level speakers from the DOD, the U.S. National Security Council, Japan’s Acquisition, Technology and Logistics Agency (ATLA), and Japan’s Ministry of Economy, Trade and Industry (METI) all emphasized the importance of incorporating start-ups in bilateral defense cooperation. Both countries have held advanced discussions about the potential for increased defense industrial cooperation through 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
Recognizing that the technologies that may determine future conflicts are often developed within the commercial sector, the DOD has launched initiatives to improve the acquisition of such technologies, both domestically and internationally. The DOD’s Defense Innovation Unit (DIU), in a strategy update last February, stated its intention to 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.
Concerns from both sides of the political aisle regarding the declining competitiveness of the U.S. defense industrial base and the security risks within the supply chain are expected to continue, irrespective of the administration. The Republican Party’s 2024 policy platform supports modernizing the military by investing in cutting-edge research, advanced technologies, and by strengthening alliances. This will also ensure that allies invest a fair share in our collective defense. From a business perspective, the growing global security crisis has led to increased defense-related stock prices and attracted stable venture capital (VC) investment in U.S. defense technology. With anticipated deregulation and more efficient government procurement processes, various investors and start-ups foresee a surge in opportunities under the Trump administration. President Trump appointed Stephen Feinberg, an investor with strong ties to the defense industry, as Deputy Defense Secretary, and David Sacks, a venture capitalist, as the White House’s AI and Crypto Czar. If the United States aims to maintain the world’s most technologically advanced and well-equipped military, maintaining a positive approach towards leveraging allied technologies is a logical and strategic choice.
Japan’s Budding Defense-Tech Start-ups
While the United States accounts for a considerable 42 percent of global arms exports, Japan has documented a single case of exporting finished defense equipment to date. This is largely due to a longstanding prohibition on arms exports, only partially relaxed in 2014. As a consequence, Japan has not traditionally nurtured defense start-ups or collaborated extensively with their U.S. counterparts, unlike countries such as 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. They introduced a range of measures. The promotion of start-up businesses focused on innovative and advanced science and technology, or “deep-tech,” is a key part of the plan. The Ishiba Shigeru administration declared its commitment to supporting research and development (R&D), innovation hubs, and human resource development for university-based, deep-tech start-ups. The number of university spin-off start-ups and the funding they receive are both increasing.
These deep-tech companies have the potential to significantly enhance Japan’s defense capabilities. ATLA operates the Innovative Science and Technology Initiative for Security program, which provides support to universities and start-ups engaged in deep-tech research that can contribute to future R&D in the defense sector. ATLA and METI also established a joint promotion committee in 2023 to create opportunities for collaboration between the Japan Self-Defense Force (JSDF) and start-ups. These combined efforts are steadily increasing the number of start-ups and VCs interested in the defense sector. Notable examples include Metro Weather, which uses sophisticated technology to predict changes in wind conditions; Terra Labo, offering observation and analysis services that utilize unmanned aircraft; and Preferred Networks, developing innovative solutions based on deep learning and robotics.
Venture capital firms with expertise in deep tech, such as the gap fund managed by the University of Tokyo and the Incubate Fund, have also joined this committee. In Japan, there’s a growing recognition of the defense sector as a promising market for start-ups. Responding to these trends, numerous start-ups, accelerators, VCs, and major corporations are preparing for these business opportunities. Approximately 40 start-ups and private companies from Japan have participated in the series of annual U.S.-Japan defense industry meetings, driven by a positive attitude from the governments of both countries.
Industrial security, traditionally seen as a challenge for Japanese companies seeking to participate in U.S. government procurement, is gradually being improved. ATLA developed the Defense Industrial Security Manual, which consolidates industrial security rules, modeled after the U.S. National Industrial Security Program Operating Manual. Additionally, Japan has become the first Asian country to join the Multinational Industrial Security Working Group, a collaborative body setting best practices for international industrial security. Last May, Japan’s parliament passed 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 essence, the foundation for advancing U.S.-Japan defense technology cooperation is becoming more stable.
Potential for U.S.-Japan Start-up Cooperation
As the importance of defense technology cooperation between the United States and Japan increases, start-ups have often been overlooked. However, their involvement has the potential to accelerate the utilization of cutting-edge technologies and create a more resilient defense industrial base. What steps are most likely to foster collaboration?
One promising area is U.S. government procurement. Japan holds the third-highest global ranking in both R&D expenditure and patent applications. With emerging deep-tech start-up ecosystems and a well-established trade control system between the two nations, the United States can leverage technologies and prototypes funded and created by allies through bilateral and multilateral programs. This aligns with the Republican policy platform’s goal of strengthening alliances by encouraging allied investment in common defense.
The DOD has already implemented acquisition programs designed to adopt advanced technologies and superior technologies from other countries. The Foreign Comparative Testing (FCT) program supports U.S. military program offices in procuring defense articles from abroad by assessing mature foreign technologies, and it holds a successful track record of over 1,000 technological tests with around 40 countries, including five active projects with Japanese companies. For start-ups with prototypes and earlier-stage technologies, DIU provides an avenue for allies to apply for procurement through the International Prototype Awards and has already completed purchases from 10 countries.
There’s also a unique initiative funded by the Central Intelligence Agency: In-Q-Tel (IQT), a venture fund that supports start-ups from the very early stages and helps translate their products for government procurement. It has investments in nearly 20 countries, including Japan’s first fusion energy start-up in 2024. Notably, DIU and IQT both sent representatives to Japan in 2024 to meet with start-up stakeholders and seek potential deals.
Another area of focus is applied research in deep tech for commercialization. Last October, the Defense Innovation Science and Technology Institute (DISTI) was established within ATLA. This aims to harness various advancing technologies to create innovative functions and equipment that will transform future warfare. The institute takes inspiration from U.S. institutions such as the U.S. Defense Advanced Research Projects Agency (DARPA) and DIU and has already initiated several groundbreaking research projects. DIU and DISTI will explore collaborative project opportunities by utilizing a prize challenge for defense-tech start-ups. In addition, Japan’s Global Startup Campus is preparing to launch in Tokyo with the aim of inviting U.S. researchers and VCs and fostering deep-tech start-ups. This will be supported by an initial research funding budget of JPY 57 billion. U.S.-Japan defense technology collaboration, thus, gains momentum through joint initiatives.
Furthermore, start-ups from both countries will have opportunities to be integrated into each other’s supply chains and participate in joint development projects with large companies. They may also participate in government initiatives, including research and implementation. Establishing the necessary framework for this may take some time.
Recommended Efforts
Although there is great potential for U.S.-Japan start-up cooperation, there are also hurdles that must be overcome to achieve this potential. These hurdles exist in both the public government sector and the private sector.
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Establishing Information-Sharing Channels and Strengthening Information Dissemination:
In addition to ongoing agreements between leaders from both nations, field-level channels are essential for deepening the mutual understanding of prioritized technologies and procurement processes. Incorporating start-ups into the existing U.S.-Japan defense dialogue is an efficient approach to create a broader base of participants. Establishing a dedicated function within the Japanese government for sharing U.S. procurement information with industries and assisting them with accumulating business experience in the U.S. market would be highly beneficial. Enhancing the joint promotion committee between ATLA and METI for this purpose is recommended. Awareness of U.S. initiatives such as FCT, DIU, and IQT remains limited within Japan. This highlights the necessity for the United States to better disseminate information and institute clear and attractive procedures for start-ups. Simultaneously, Japanese start-ups need to be more proactive in sharing information about their technologies and applications by participating in defense-tech exhibitions and stakeholder forums. Major Japanese companies with significant experience in the U.S. market can play a vital role in bridging stakeholders.
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Aligning Information Security:
It is crucial for Japan to uphold an information protection system, similar to those of its allies and partners. This can be achieved by establishing the country’s defense framework against cyberattacks, also known as active cyber defense, and by addressing the Cybersecurity Maturity Model Certification 2.0, released by the DOD last October. ATLA should provide start-ups with continued assistance—including guidance and financial support—to meet these security criteria. Strengthening Japan’s information security posture will permit both countries to update export control policies, which hinder smooth joint R&D and technology transfers, particularly for dual-use technologies.
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Overcoming Defense Industry-Specific Challenges in Japan:
Japanese start-ups and VCs must overcome an academic or financial mindset discouraging involvement in military-related matters. This is driven by the fact that some VC-limited partner agreements or research awards prohibit weapon-related business. Strengthening dialogues between ATLA, start-ups, and VCs will assist in cultivating human resources with a robust comprehension of the defense sector, reducing any aversion to defense activities, and achieving a superior understanding of private-sector factors. ATLA retirees and JSDF veterans in the private sector could facilitate such dialogues with support from the Japan Association of Defense Industry and the Society of Japanese Aerospace Companies.
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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. It has only two deep-tech unicorns compared with 979 in the United States. Establishing start-up support teams within universities and attracting deep-tech-focused overseas VCs are imperative actions. It is essential for the Japanese government to expand and utilize the Small Business Innovation Research (SBIR) scheme, including the Innovative Science and Technology Initiative for Security Program, and accelerator programs like the J-StarX Dual Use Technology Accelerator. Additionally, these programs should offer participants greater opportunities to connect with the U.S. market and relevant stakeholders.
Conclusion
The rise of commercially-driven technologies through start-ups, alongside Japan’s efforts to build robust deep-tech start-up ecosystems, and the changing perception of defense as a viable business all contribute toward a beneficial momentum for U.S.-Japan collaboration. Integrating start-ups into traditional industries can diversify the defense industrial base, accelerate innovation, and strengthen supply chain resilience. Continued efforts from both nations are essential to seize this unique possibility. Commitment from President Trump and Prime Minister Ishiba at the upcoming summit will provide further encouragement to start-ups and boost 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. Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s). © 2025 by the Center for Strategic and International Studies. All rights reserved.
