if you take a sabbatical then you haven't really risked anything. you have to go all the way. what do you guys think about James from Hot or Not giving up his millions. He probably went out to a nice dinner to celebrate.
I got the impression from James's post that he wasn't actually "giving up" his millions, he was locking up all future profits in the business and reinvesting them. He converted HotOrNot from an S-corporation to a C-corporation. You can certainly reinvest profits from an S-corporation into the business or pay out profits from a C-corporation as dividends, but the incentives go different ways. S-corp earnings are taxed as ordinary income (none of the double-taxation of corporate profits) and S-corps can't give out different classes of shares, so there's an incentive to distribute the profits out to the shareholders. C-corp earnings are taxed once at the corporate level and then once as dividend earnings, yet they can have multiple classes of shareholders. The incentive is to build up the business and eventually seek an IPO, acquisition, or other liquidity event.
It almost looks like James is positioning HotOrNot to get big and get bought.
There's risk and then there's prudent risk. Taking a 12 month sabbatical to focus on the startup would be a prudent risk. And, it's going all the way, just for 12 months. If you don't know in 12 months if the business will succeed, it probably won't (especially in this space). Anyway, I wish the guy lots of luck and success. I supposed if he makes millions, he can always go back.
