Should a company always look to VC for funding

Probably the most common association with a start-up is Venture Capital. All start-ups require some form of financial input in order to get off the ground but Venture Capital is not the only or always the right option for start-ups.
There are many things that a start-up must consider before choosing what they of capital to pursue:

1. Type of business
2. Attitude towards growth, ownership and control
3. Stage of development of business
4. Risks and return
5. Burn rate
6. Bargaining power

I think the first question to ask yourself really is whether you need funding at all? This technique is called bootstrapping, where a company starts up a business with as little external capital/help as possible. In effect it is beg, borrowing and salvaging as much as possible without the need of lots of cash. It is certainly a technique that is possible and there are lots of examples where companies have been successful using this technique.
For example, the hugely popular website Hot or Not is a prime example of a bootstrapping company. The website, founded by then student James Hong, was originally hosted on a university's server, with the university unaware of the fact. Within a week the site was getting 2 million views a day and James was in danger of being caught by the university. The site needed to be moved to an external server. Once James found a server to host his website, instead of paying a large fee, he negotiated a deal to host the website free in exchange for advertising the server on the website. Perfect example of bootstrapping on how you can get something for free, that you would otherwise would have to pay a large amount for.

If you do however require funding then you need to decide what the best funding option is. The first thing to ask is what type of business is your business. I think you need to ask yourself whether the business is viable or fundable. Any business that is fundable is viable, but any business that is viable is not necessarily fundable. Viable is the ability of a firm to make self-sustaining profits whereas fundable implies the ability to make substantial profits (10x profits). VC's only invest in fundable businesses so unless your business is fundable, not just viable, then don't bother.

Your attitude towards growth, ownership and control matter a lot. With VC's you might be restricted in the actions that you can take. To use a crude analogy, if you have 2 options to consider. One option to have a 100% chance of making £10million or a 20% chance of making £100million (expected return = £20million). A lot of people will be happy to take the 1st option but VC's will nearly always push you to go for the 2nd option.

The stage of development is very important. There are 4 broad phases to that the development process can be in. Initial idea, Feasibility, Prototyping and Commercialisation. VC's are unlikely to invest unless the idea has been proven in the market already with a prototype. You might be able to get Business Angel funding in the Feasibility stage onwards. The only capital you can get during the Initial Idea stage is your own cash or friends and family. And what about the bank? Only when you start producing cash flows in the commercialisation stage.

VC's only back high risk, high potential return start-ups. Obviously the less risk the better but high potential returns are correlated with high risk.

If you are desperate for cash then your bargaining power significantly decreases against providers of capital. Your room for negotiation almost disappears and be left with less equity than you probably deserve.