It is indeed a difficult situation. Sure, success sounds like a good thing, especially if it helps the ones who created the site and the artists. But it's a very risky move, with many things that could go wrong. First of all, the investors would get influence (I don't know how much but surely not only a bit) over Newgrounds and that gives me a very bad feeling. The staff is very close to the community, something that can't be found on any other site. The ones who are in charge and the community share a bond of friendship, it sounds cheesy but it's true. Newgrounds in all its aspects was always a close community, that's what defines Newgrounds for me, and I am sure that many others feel the same way, and I fear that this would go away when huge investors gain more influence. I am not even sure if the "all artists and game developers will get sponsored" will become reality, most likely investors would concentrate on only a few very famous artists( possibly with stricted contracts in terms of the content they are supposed to make), or maybe even only on companies who release some polished games that don't have much originality. The "Everything, by everyone" aspect of the site wouldn't exist anymore. You already mentioned that some content would have to be deleted.
The thing that I fear the most is that the "5 years of being amazing" ends with a financial catastrophe, that leaves you with nothing and makes Newgrounds vanish.
That's why I vote for option 1, staying solo. The mentioned micro-transactions sound like a great idea to me and I support them.