Industry Ministry Formulates Guidebook on ‘Carve-out Ventures’; Aims to Make Optimal Use of Latent Technologies

Yomiuri Shimbun file photo
The Economy, Trade and Industry Ministry building in Chiyoda Ward, Tokyo.

The Economy, Trade and Industry Ministry has for the first time compiled a guidebook for so-called “carve-out ventures” — startups formed when a large company sells off a stake in a business unit.

The move is aimed at bringing to light technologies that might be overlooked in large companies and provide an impetus for technological innovation. The guidebook was released on April 26.

A carve-out venture involves the strategic separation of a business unit. When a major firm determines that the unit would not be the focus of its main business even if it possesses advanced technology, the new entity is formed by employees venturing out on their own or other means.

Becoming independent allows for quick decision-making that could help expand the business, which makes it more attractive for investors.

“By becoming independent of the parent company, [the carve-out venture] will be able to maximize the speed of its business growth by promptly and proactively tackling new business opportunities and research and development,” the guidebook states.

The guidebook also stresses the importance for carve-out ventures to be “free from the constraints of the parent company and create an ability to carry out businesses that are most suitable in a competitive environment.”

Given that, it urges that the new venture refrain from carrying over the parent company’s personnel system that tends to be rigid, and have the parent company’s stake be restricted to less than 20% to limit its influence.

On top of that, the parent company is advised to provide the new venture with intellectual property and management resources. “If assets and organizational know-how are provided, it makes it possible to acquire synergistic effects,” the guide says.

According to the Cabinet Office and other sources, large companies account for about 90% of R&D spending in the private sector. On the other hand, about 60% of technologies that were not commercialized at large companies have disappeared.