[throwaway1124]

In seed stage companies, what is the disadvantage of enabling your employees to early exercise and bonus-ing or loaning them the capital to do so?

The advantage seem clear: employees can get 25-35% more equity at effectively no cost difference to the company.

[enra]

I don't know if there is a way to avoid this issue with some lawyering but loaning money for options was apparently somewhat common in the 90s tech bubble. [1]

Unfortunately what happened was that when the bubble burst, and many companies went under, the board and management resigned, leaving the company in the mercy of creditors. These creditors sometimes when after these employee loans and they had to pay them back while the stock they received was worthless.

[1]: https://www.fenwick.com/publications/pages/playing-with-fire...