Shall a startup seek funding (services-for-stock deals) directly from service providers, instead of or in addition to seeking cash from VCs?

It depends on the potential for growth of valuation in your business. If 5 years from now, you think you think "moderate" success is most likely (a few million in ARR as a Saas business as just one example), then using your equity to buy services might actually be *worth* it.

But if you're pursuing a fast-growth, VC backed business where you aim to create a 50x return (minimum) on your current valuation, then spending on services with equity is really not advisable, or at the very least, I'd recommend you do it very sparingly.

I would also say that the absolute maximum in a venture backed business that is tolerable for a good cap table would be 8%. Tipping beyond that leads to a messy cap table and lots of small share holders, which you generally want to avoid.

Finally, I'd be sure to get your Service Level Agreements really nailed. Meaning, you want them to commit to a minimum number of hours that equates to the right valuation, and have provisions for these shares to be canceled in the case that you dismiss them before they create full value.

Happy to talk this through in more contextual detail to your business in a call.

In order to answer this successfully, more scope is needed on your business, industry, and services you're seeking to be rendered.

When you look at if from the VC side of things, we're giving you (the founder) cash as a way to "buy" the factors of production that you would need in order to successful pursue your business goals...(along with other valuable advice and guidance)

As a founder, you should be looking at a number of different value perspectives when you attack this situation:

Is the equity your giving up for the services cheaper, or more expansive than the equity you'd give up for the cash to "buy" the services...?
Who would make a better long-term strategic partner? Who compliments your business better when looking at your strategic roadmap for the next five years? Who is more incentivized to take action in helping you along your journey?
Are you going to be opening yourself up to any systemic risks?

At my firm, we actually invest in the business that other startups tend to trade "equity for services" with, as a strategy we employ to help amplify our net capital impact, when syndicating value across our portfolio :)