Guidance for Putting Entrepreneur-Led Carve-Outs into Practice Compiled as Effort for Encouraging Business Companies to Produce Startups

1. Background and targets

Aiming to create new companies and industries backed by innovative technologies and solve various social issues through such creation, METI has been providing subsidy projects to support deep-tech startups in facilitating business growth and implementing their innovative technologies across society.

METI considers it desirable for society to make greater use of innovative technologies that contribute to solving such various social issues. However, about 90% of the R&D investment by the private sector in Japan is carried out by large companies, while it is estimated that about 60% of the technologies that companies cannot commercialize have been abandoned. If these technologies are not abandoned but are disseminated and popularized among customers and in society as products and services, the technologies are expected to contribute to creating new industries and realizing innovation.

However, companies often face difficulties in commercializing their technologies due to the limitations of their organizational capability and culture to produce new businesses. Despite this situation, Japan has not necessarily fully discussed or organized approaches to helping companies overcome such limitations and connect these technologies to social implementation.

2. Guidance for Putting Entrepreneur-Led Carve-Outs into Practice

Against this backdrop, METI launched the Study Group on Strategic Utilization of Carve-Outs as a Method of Business Creation Utilizing R&D Results. In response, the study group examined measures for commercializing technologies that companies cannot commercialize due to the limitations of their organizational capability and culture, and based on the discussion results of the study group, METI compiled the Guidance for Putting Entrepreneur-Led Carve-Outs into Practice.

The guidance focuses on startups as entities working on the commercialization of innovative technologies and defines “startup creation-type carve-outs” as actions by companies to create a separate legal entity (i.e., a startup) from them with an aim to commercialize a technology not feasible for the companies due to the limitations of their organizational capability. It should be noted that this type is different from a carve-out in the sense that a company carves out a subsidiary or part of the company's business from itself.

Among “startup creation-type carve-outs”, the guidance defines those in which an entrepreneur takes the lead in the carve-out process in the business company and takes on subsequent management as “entrepreneur-led carve-outs”. Regarding this type, as the carve-out process proceeds in a bottom-up manner, companies tend to face discrepancies with entrepreneurs regarding the basic understanding of the target technology and the growth speed expected of a startup to be launched. Therefore, it is more important for companies to internally coordinate based on a common understanding of such a process.

To address this challenge, the guidance focuses on entrepreneur-led carve-outs and presents well-organized characteristics of such carve-outs to show practical methods for them.

Moreover, based on these methods, the guidance provides ideal approaches that companies should take in putting curve-outs into practice and the stumbling points that they may encounter in holding internal discussions and coordinating. It also includes a collection of case examples of pioneering companies working on the creation of startups from them, including NEC Corporation and Honda Motor Co., Ltd., with these companies’ consent.

Related Materials (in Japanese)

• Guidance for Putting Entrepreneur-Led Carve-Outs into Practice (summary)(PDF:531KB)
• Guidance for Putting Entrepreneur-Led Carve-Outs into Practice (main text)(PDF:3,304KB)

Related Link

• Study Group on Strategic Utilization of Carve-Outs as a Method of Business Creation Utilizing R&D Results

Division in Charge

Innovation and Industry-University Collaboration Division, Industrial Science, Technology and Environment Policy Bureau