Entire companies exist whose sole purpose is to provide equity finance. Such a company might specialize in funding a specific category of companies, such as Life Sciences or IT companies, or a specific type of company, such as a sports facility.
The capital funding company might also specialize in providing a certain type of funding, such as short or long term financing, or it might provide financing of all types. It could also choose to focus on funding a certain stage of the business, such as product development or prototype testing, or it might fund businesses at any stage. Angel Investors and Venture Capitalists are examples of those that provide capital funding.
A startup that grows into a successful company will have several rounds of equity financing as it evolves. Since a startup typically attracts different types of investors at various stages of its evolution, it may use different equity instruments for its financing needs.
For example, angel investors and venture capitalists – who are generally the first investors in a startup – are inclined to favor convertible preferred shares rather than common equity in exchange for funding new companies, since the former have greater upside potential and some downside protection. Once the company has grown large enough to consider going public, it may consider selling common equity to institutional and retail investors. Later on, if it needs additional capital, the company may go in for secondary equity financings such as a rights offering or an offering of equity units that includes warrants as a "sweetener".