In late May, employees of the fintech startup Bolt saw a message from their CEO on the company’s Slack. It warned them that “restructuring” was coming, and they should look out for a calendar invitation: One group would join a meeting with human resources, meaning they were being laid off, while another would go to a “town hall,” meaning they still had a job.

By the end of the day, 250 employees—nearly one-third of the company—had been let go. The mood was sour. Among the bitterness and anger, some employees simply felt confused. Bolt had just raised $355 million in venture capital, and investors had valued the startup at $11 billion. In April, Bolt reportedly spent $1.5 billion to acquire a crypto startup. Elsewhere, there were signs of a worsening market, but Bolt seemed to be doing fine; the founder bragged that the company was growing “at lightning speed.” An employee had even asked, in a recent town hall, if they should expect layoffs any time soon. The CEO, Maju Kuruvilla, had said no.

Those types of reassurances led some of Bolt’s employees to take out personal loans from the company in order to exercise their stock options. Bolt’s founder, Ryan Breslow, had announced the program publicly in February, describing it as “the most employee-friendly stock option program possible.” Bolt would let employees exercise their options early and potentially buy more equity in the startup by taking out interest-free loans from the company. At the time, Breslow said that over half of Bolt’s employees had chosen to take part in the program.

One of those employees, a software programmer who asked not to be named because he isn’t authorized to discuss internal company matters, took out a $100,000 loan to exercise his stock options once they vested. To him, Bolt “looked like a rocketship,” and he was willing to take the risk for the potential reward. Then, just months after taking the loan, he saw the “restructuring meeting” appear on his calendar. He was getting laid off.

Over the last several months, a number of startups have had to make cuts to their staff, leaving thousands of employees in the lurch. Some, Klarna and Peloton, had grown their staff feverishly during the pandemic, only to cut hundreds of jobs this spring. Venture capitalists have started turning off the fire hose of cash, and many startup CEOs are realizing they might not be able to get easy money anymore. In a blog post defending the layoffs, Kuruvilla described Bolt’s need to extend its runway and try to become profitable with the money it had already raised. To do that, it had to sacrifice some people.

For Bolt’s employees, though, it felt like whiplash. The startup had gone on a hiring tear at the end of 2021, adding hundreds of new people. Many of those new hires left jobs at big tech companies, like Amazon and Google, only to have their positions disappear less than a year later. “I came to a startup because I’m willing to swallow some risk,” said the Bolt software engineer. “Sometimes you take a risk, you do your best, and it doesn't work out. But that’s not what this feels like.”

Stephanie Tan, a spokesperson for Bolt, said that only a “single-digit” number of employees who were laid off will have to pay back loans on vested stock options. “Employees who had taken out loans but did not vest had their loans canceled when the unvested stock was repurchased by Bolt,” she wrote in an email. Employees who do have to pay back loans will have 30 days to do so.

The software programmer with the $100,000 loan said that his options were about to vest, which left him with two choices: He could sell the options back to Bolt, or go through with the purchase. If he did that, he would need to find a way to come up with the money soon. “I have to figure out how much I can afford,” he said. He didn’t want to give up stock that might be valuable someday, but he also wasn’t sure how he would repay the $100,000.

Even before May’s layoffs, industry veterans warned that taking out loans to buy company stock was a mistake. “It’s a significant risk that I don’t think most employees can afford,” says Oren Barzilai, the cofounder and CEO of Equity Bee, a platform that helps startup employees exercise their stock options. “If the company fails—and obviously, many startups fail—they would need to pay out of pocket to pay back that loan.”

In the dotcom crash of 2000, plenty of other startup employees found themselves in a similar position. These types of loans left people saddled with debt “worse than student loans,” says Trevor Loy, the founder and managing partner of Flywheel Ventures. The problem isn’t just paying back the sizable amounts they borrowed, he says, but the tax burdens from having loans forgiven. If a startup went bankrupt or decided to forgive its employees’ loans, getting that money back could be taxed as “income” by the IRS.

Loy says startup founders who haven’t been through such a downturn before can be naive, ignoring the ways these types of loans can wreak havoc. “The core problem here occurs when people in startups operate with a worldview and future perspective that assumes that valuations will generally rise over time, and that periods of declining valuations will be short-lived,” he says.

On Friday, Kuruvilla, Bolt’s CEO, published a LinkedIn blog about how to build resilient startups. Leaders, he wrote, need to focus on decisions they can easily undo. “Hiring someone, signing a partnership agreement, or even launching or updating a product—these weren’t permanent. We could roll them back if it came to that,” he wrote. The Bolt employees who were laid off may wish their decisions were as easily reversible.