Nanotech Disappoints in Europe

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But Europe's nanotech startups are less successful. "They are struggling because they are not creating new markets, just competing in existing markets with larger competitors," says Rodrigo Amandi, a research analyst at Swiss financial research firm SAM Group. Europe's small caps "are not delivering something spectacular, which is what we were promised from nanotech," he says.

University/Corporate Divide

That's a concern because startups feed the innovation mill. Nanotech's real opportunity—and the real money—are yet to come, when basic building blocks are combined in new ways to deliver breakthrough products that score with the public. The trouble, analysts say, is that Europe is failing to put the right innovation pipeline in place to ensure it can cash in on the next phase.

In part that's due to the age-old schism in Europe between academia and corporate R&D. There are fewer partnerships between universities and industry than in the U.S. and Japan, and European scientists are still less inclined to leave secure research jobs at schools or corporations to start risky ventures. On top of that, European industry is investing less in nanotech than counterparts in the U.S. and Japan, European Commission figures show.

Europe's weaker entrepreneurial culture also hurts startup activity. When nanotech companies are formed in Europe they often lack clear business models and exit strategies, and their teams tend to be short on commercial experience. That's one reason Europe gets a proportionally smaller share of global nanotechnology venture capital investment, according to Spinverse. And though public funding makes up some of the difference, it doesn't offer venture capital's other benefits, including strong industry knowledge and networking.

Shift to Health Care and Pharma

Still, says Spinverse Chief Executive Pekka Koponen, "Europe has a chance to catch up." He thinks Europe could shine in creating instruments and tools for nanotechnology. "In all gold rushes the shovel-makers were the first to make money," he says. "We could see that here also." To date, U.S. companies such as FEI (FEIC) and Veeco Instruments (VECO) are the leaders in this area, but Koponen says European contenders such as Sweden's Obducat and Russia's NT-MDT shouldn't be overlooked.

Potentially even more important is the upcoming shift from nanotech materials to applications—especially in health care and pharmaceuticals. These are fields where Europe is historically strong and already has sophisticated business networks. Cientifica's Harper notes that pharma clusters in Britain, Germany, and Switzerland could be especially successful in nourishing nanotech startups.

With such "ecosystems" in place and policy changes on the books to help nanotech move more easily from lab to marketplace, Europe still could become a global leader in nanotech. The science of the small could eventually have a very big impact.

Schenker is a BusinessWeek correspondent in Paris.