Stock is the basic unit of ownership in a corporation. A corporation can have more than one class of stock, though, meaning that each class may be given distinct rights. The two most common classes of stock for a startup are common stock and preferred stock. Founders and employees usually get common stock (or stock options), whereas investors usually get preferred stock. Preferred stock confers certain benefits on investors, including things like protective provisions, liquidation preference, and more.
Common stock does not sound exciting. Preferred stock does. First-time founders are looking for excitement—especially when it comes to their millions of initial shares—and so they’re often surprised to hear that they’ll be receiving common, rather than preferred stock when the startup is incorporated.