Start-Ups: When to seek venture capital funding if at all
There are two distinct schools of thoughts, one that believes that venture capital funding is a must for service industries to reach the next stage of growth and the other that believes venture capital funding is not required. I must confess, I belong to the second school of thought.

So what are the key drivers that lead an organization to seek VC funding? Some of them are:
1. To meet a requirement of additional funds for expansion purposes
2. To use the expertise of the venture capitalists
3. To use the business connections of the venture capitalists
So are these compelling reasons for VC funding?
A service industry with the right control and operating practices can operate at profit margins ranging from 50-70%. Careful and planned investments of these profits can help drive most of the expansion requirements. And all this can be achieved without diluting the equity of the founders. The expertise of the venture capitalists are valuable inputs, but their involvement needs to be evaluated from the following perspectives – active or passive role, any competing companies in their portfolio, their contacts for marketing and their experience in similar service industries.

But the process of seeking VC funding is an exercise that I believe should be undertaken by all companies even though the ultimate objective might not be VC funding. The key steps in this exercise are:
- Prepare the business plan that includes a executive summary, company overview, management and ownership, products and services, market analysis, funds requirements, marketing plans, pricing, competition, operations and five-year projections.
- Prepare the financial forecasts.
- Include some industry experts on board
This exercise provides direction, gives confidence to stakeholders and helps meet and devise aggressive marketing plans.

So can we conclude that companies should never seek VC funding? No, as these will be dictated by business, industry and market factors. But it is important to realize that VC funding is not the end-all of business. You should be clear on the reasons for seeking VC funding and the value-additions to the business from this funding before deciding on VC funding.

Awaiting some views on this, definitely from VCs and companies who have gone through VC funding process.