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Aside from whether this is ethical or not, its not legal in California. Even interns have to be paid at least minimum wage.

In most states, afaik, unpaid interns are not allowed to be working on things that provide income to the company.

So what if, like almost all startups, no income is being generated?

hrm. That's an interesting stance, and I don't know!

Do you have a reference for that?