The trouble with today’s venture capital industry is that it thinks short term. It encourages startups to develop point-products with a view to being acquired – and as a result, fundamental research into next generation Internet technologies gets neglected.

That’s the view of Judy Estrin, the serial entrepreneur and former chief technology officer of Cisco Systems Inc. http://www.cisco.com (Nasdaq: CSCO). Today, Estrin is announcing her plan to solve the problem: she and her husband, Bill Carrico, have set up Packet Design Inc, a research company. Estrin will act as the CEO of the company and Carrico will be Chairman.

Packet Design will focus on technologies that will take two to four years to develop, according to Estrin. The company's intellectual capital will either be spun off as independent companies or will be licensed to customers -- an approach Estrin calls 'the perpetual startup.'

Initially, Packet Design will focus on three areas: IP, security, and wireless/mobility. In the optical networking field, Estrin intends to concentrate on software and routing technology, since these areas have not been adequately addressed by startups, in her opinion. "All these optical switch companies call their products routers, but they are not really doing anything in routing," she says.

Packet Design is armed with $24 million in venture capital--raised from Foundation Capital along with individual investors including Estrin, Carrico, former Netscape CEO Jim Barksdale, and Sun Microsystems Inc.'s http://www.sun.com (Nasdaq: SUNW) chief scientist Bill Joy.

With the company relying on equity stakes in spin-offs to earn shareholders a profit, the funding needs to last until the first liquidity events, or at least until Packet Design can build a sufficient revenue stream in licensing. Estrin claims the funding is adequate because Packet Design will not have a large marketing budget.

There's reasons to be skeptical about Estrin's approach. In particular, it's hard to see why a brilliant technologist would choose to create a product at a research company rather than set up his or her own venture.

Others have tried similar schemes and failed - notably, Paul Allen, whose Interval Research Inc. burned though nearly $100 million, generating little revenues before being closed down.

Other networking holding companies, such as Raza Foundries http://www.razafoundries.com, take a different approach. Raza allows entrepreneurs to generate their ideas independently, and then brings them into Raza Foundries to speed them to market.

Estrin downplays such criticism of her approach. She points to successful R&D programs at companies such as Sun Microsystems, and says that companies will continue to look externally for research ideas that can be spun off into products.

Packet Design's skeptics might also take note of the company's technical advisory board: It includes Vint Cerf, senior vice president of Internet architecture and technology for WorldCom http://www.worldcom.com (Nasdaq: WCOM); Scott Bradner, senior technical cosultant with Harvard University; and Deborah Estrin, professor of computer science at UCLA. Board members include the legendary tech investment banker Frank Quattrone, with Credit Suisse First Boston http://www.csfb.com, and Bill Elmore of Foundation Capital.

--by R. Scott Raynovich, Executive Editor, Light Reading (http://www.lightreading.com)