Japanese defense and aerospace startups are capturing the attention of U.S. venture capital investors, filling a gap left by a less-developed domestic funding landscape. This growing interest aligns with Japan's recent push to bolster its defense capabilities, leading to increased foreign investment in the sector.
"Businesses overseas are more aware than those at home that an increased budget will expand the defense industry," said Japan’s Ministry of Defense's Acquisition, Technology, and Logistics Agency in a press statement. This heightened awareness among U.S. investors has led to a surge in funding for innovative Japanese startups, particularly those involved in cutting-edge aerospace and defense technologies.
One standout example is Astroscale, a Tokyo-based company specializing in space debris removal and satellite refueling. The firm made a notable debut on the Tokyo Stock Exchange's Growth market, reflecting the strong confidence in its prospects.
“Astroscale's mission to ensure that sustainable space operations has resonated with investors globally,” said Astroscale Vice President Shunji Izutsu, a former chief of staff of Japan’s Air Self-Defense Force.
To date, Astroscale Holdings is raising $153 million via an initial public offering (IPO) at Tokyo. The Japanese space tech startup said it intended to use the IPO proceeds primarily towards project development and research and development.
Astroscale is the first space debris removal company to conduct an IPO and the second space industry global IPO in Japan, following ispace Inc.’s global IPO in 2023.
Similarly, Synspective, another Tokyo-based startup, has gained attention for its work with synthetic aperture radars, which can capture images in all weather conditions, day or night. The company has been involved in significant government projects, providing valuable data and insights to the Ministry of Defense.
This month, Synspective announced that it secured $44.1 million in a Series C funding round and said it will use the money to accelerate its global business expansion.
Yuki Takemori, head of the Development Bank of Japan’s Innovation Promotion office, said: “We are now more open to projects we might have previously avoided.”
The trend is part of a broader effort by the Japanese government to enhance the country's defense capabilities. Japan plans to increase its defense budget to $270 billion over the next five years, a 1.6-fold increase from previous levels. It will also establish an organization modeled after the U.S. Defense Advanced Research Projects Agency (DARPA), which is known for pioneering technologies like the Internet and GPS.
Companies like Mitsubishi Heavy Industries and Mitsubishi Electric are also increasing their focus on defense-related businesses, recognizing the potential for public-private collaboration to drive technological advancements and cost efficiencies.
Sparx Group Executive Office Takaki Demichi highlighted the evolving investment environment: "The support from both government and private sectors is critical for the growth of defense startups."
While the United States has a well-established ecosystem for funding defense startups, Japan is still in the early stages of building a similar framework.
"The establishment of a robust funding ecosystem is crucial for the long-term success of Japan's defense and aerospace startups," said Sparx Asset Management’s Head of Space Investment Tadashi Kito.
