Japan’s “5-Year Startup Cultivation Plan” is an ambitious industrial policy aiming for 10 trillion yen in funding over five years from public and private sources. However, of the announced budget, how much actually reaches startup company accounts and is utilized as capital for R&D and business growth?—Based on survey reports, we organize the flow of public funding.

The “4-Layer Structure” of Capital

To accurately capture the flow of public funding, we decompose the capital flow into four layers.

  1. Layer 1: Budget Allocation — Macro budget allocated from the Ministry of Finance to each ministry. Corresponds to “project scale” reported in news.
  2. Layer 2: Execution and Operation — Funds flowing from ministries to private companies (consultants, ad agencies, etc.) entrusted with fund management and secretariat operation. “Management fees” and “administrative commission fees” are deducted here.
  3. Layer 3: Grant and Receipt — Amount nominally decided for grant to selected startups after screening.
  4. Layer 4: Net Capital Injection — Amount that truly contributes to business acceleration after subtracting companies’ out-of-pocket burden (non-eligible expenses, shortfall in indirect expenses, tax costs) from the grant amount.

This article focuses on secretariat cost expansion in Layer 2 and capital value erosion from institutional costs in Layer 4.

The Huge Market of Secretariat Operation

Government agencies lack resources for direct individual company support and detailed screening operations, so these are outsourced to private companies. The reality of capital absorption in this “Layer 2” can be read from public tender information.

In METI’s “J-StarX” (entrepreneur overseas dispatch program), Deloitte Tohmatsu Financial Advisory won approximately 950 million yen for secretariat operation. This far exceeds typical seed/early-stage startup funding (tens to hundreds of millions of yen).

The key fact is that this 950 million yen is never recorded on startup balance sheets. Participating companies receive benefits in the form of travel and participation fee waivers, but their cash flow does not improve. In human resource development projects, the majority of the budget (estimated 80–90%) flows back as revenue to “secretariats” and “subcontracted service providers,” with extremely limited direct capital injection effect on the startup ecosystem.

The “Subsidy Rate” Paradox and Self-Financing

NEDO’s “Deep Tech Startup Support Fund” provides grants of up to several billion yen, but not in full.

  • Subsidy rate: Typically 2/3 or 1/2 of eligible expenses
  • Matching requirement: The remainder must be borne by the company. Application guidelines sometimes explicitly require “obtaining from VC investment or financial institution loans”

In other words, to receive public funding, you must first raise funds from the private sector—a heavy constraint. It is not a mechanism to rescue companies struggling with funding, but to further boost companies that already have fundraising capability.

The Decisive Difference from U.S. SBIR: Absence of “Profit”

Under the U.S. SBIR program, up to 7% of eligible costs can be added as “Fee” (profit). This 7% has no use restrictions (Unrestricted Funds). Companies can use this for patent attorney fees, marketing, next product concepts—activities outside grant scope.

In contrast, many Japanese subsidy programs do not allow “profit” accounting in principle. For indirect expenses, caps like “10–30% of direct personnel costs” are set, or use is strictly limited.

When startup actual SG&A ratio (rent, back-office personnel, software, etc.) is 30–50% but grant-covered indirect expenses remain at 10%, the 20–40% shortfall flows out from company funds. Conducting a 1 billion yen grant project could force companies to cash out hundreds of millions of yen.

Japanese startups face the paradox of “business scale expands with public funding, but cash flow worsens and bankruptcy risk rises.”

10 Billion Yen Simulation

If “10 billion yen in startup support budget” is allocated, it roughly attenuates as follows.

  • Secretariat and management fees: 1–1.5 billion yen to BPO providers and agencies
  • Selection and grant decision: Approximately 8.5 billion yen for startup allocation in public offering
  • Application agent fees: 10–20% success fee to consultants (from company funds)
  • Company out-of-pocket: 1–3 billion yen for indirect expense shortfall, non-eligible expenses, consumption tax burden

Result: “Net Gain” for startups is nearly zero. Received funds flow right through as tied expenses. Japanese public funding has stronger character as “discount coupons for specific R&D activities” than as “fundraising.”

Conclusion: Shift from “Quantity” to “Quality”

Capital is indeed being poured into startup-related measures. However, the flow has these characteristics:

  • Flow back to service industry: In human resource development projects, most of the budget becomes secretariat revenue
  • Contribution to cash flow: In subsidy-type projects, low indirect expense coverage and non-allowable profit accounting make startup cash flow improvement effects extremely limited

To achieve the 10 trillion yen scale target, we need to improve the “Quality of Capital” of funds, not just stack budget amounts.

  1. Introduce U.S.-style “Fee”: Allow use-unrestricted “profit” accounting (7–10%) in R&D grants
  2. Rationalize and transparentize secretariat functions: Strictly verify cost-effectiveness of secretariat commission fees reaching hundreds of millions to billions of yen
  3. SBIR Mills countermeasures: Cap application count and cumulative receipt amount, strictly review commercialization transition track record

Japan’s startup policy is approaching Western levels in budget scale. But in designing the last mile—how much of that capital remains as “real ammunition” in entrepreneurs’ hands—significant room for improvement remains.