Equity involves making an investment of funds to a company in exchange for a percentage of ownership in the company. Equity is typically preferable for a startup company despite the fact that there is no tax benefit for the company like there is for debt financing.
The benefit of equity comes from the fact that there is no consistent payment stream for the company to make. The company can put the cash back into the company to focus on growing the business and gaining traction.
The two primary forms of equity include common equity and preferred equity. It is important to review the specific terms of the issuances of these forms of equity as they are not universal across all companies.