The traditional forms of venture capital are the three instruments through which startups have conventionally issued ownership or rights to investors: common stock, convertible notes and their successors such as SAFEs, and preferred stock.
Common stock is basic ownership of the company's shares, divided up among founders at inception. It carries no special rights beyond ownership and is the class that founders and employees typically hold.
📝Convertible Notes, which evolved into SAFEs, are cheap and easy ways to bring in investors before a priced round. Y Combinator publishes the standard SAFE (Simple Agreement for Future Equity), and 500 Startups published the KISS (Keep It Simple Security) as a similar instrument.
Preferred stock is required by institutional venture capital firms. Its holders get additional rights and preferential treatment over common shareholders. The National Venture Capital Association's Model Legal Documents are the widely used templates for these preferred stock financings.