What are the advantages and disadvantages of a pre-IPO ISO exercise?

If you exercise pre-IPO and the stock appreciates, you could score a lower upfront AMT bill, and start your qualifying disposition holding period sooner than later. This can give you favorable tax rates when you sell the stock. However, a pre-IPO exercise also has its disadvantages. You could be left holding unsellable stock of low or no value if the IPO never occurs, or the share price declines.