I wouldn't count (a) as an argument. Let's say 90% of the side projects become something. I would argue in that case you as employer could still profit from all

I wouldn't count (a) as an argument. Let's say 90% of the side projects become something. I would argue in that case you as employer could still profit from allowing it. You could be a first investor as long as it is cheap, or an early bird customer with huge influence on features and look&feel. The employee still learns a lot of things that he can flow into the rest of the team through presentations and lunch break discussions. And last but not least, if a smart new employee sees that input is encouraged he also brigns in more courage to his day job and feels less need to do his own thing.