Planning for venture funding in India and the road ahead

I worked for few government organizations on contractual basis for four years. They were my premium customers for custom software applications. After freelancing for these many years and learning from my own mistakes, I want to get rid of this freelancing term and want to start a new company. In these years of freelancing, I felt a need for a basic office setup because officers of these organizations often desired a meeting in my office. This is also a main reason to get funding.

The other reason is that now I want to proceed seriously with focus on products and services. I want to register a company name and also want to convert it to Private Limited. I want a product line for specific domains and services that I am already rendering to government organizations.

I contacted few banks and learned about the variety of new schemes for startups. I want to know how venture funding differs from such bank loans for startups. At present I have not decided the product line. I want to know whether venture capitalists fund any startup that is at present giving services only and plan to grow? How should I prepare for the road ahead?

You asked how venture funding differs from bank loans, which looks like the only part of your question that we're capable of answering, so I'll start there.

Normally, they are completely different because a VC purchases equity in your company and a bank gives you a loan. The bank does not own any part of your business, but the loan must be paid back, and there is likely collateral via your business or personal finances for that loan. VC funding through an equity purchase is not a loan. Your company receives money in exchange for shares in your company. However, this investment usually comes with a board seat and the right to get their money back first in the event of liquidation.

There is also convertible debt, which is basically a loan from VCs that can "convert" into an equity investment if you take investment later (or you can pay it back like a loan).