[maconic]

One thing is for sure: unpaid internships are probably illegal nine times out of ten. Employers are legally required to pay interns at least minimum wage if they fit the definition of an employee. Given the way most startups use interns, they would be considered employees.

According to the Department of Labor, if an intern's work benefits the company, then the intern should be treated as an employee. There is a six factor test, more on this here: http://www.clark.edu/student_services/employment/documents/L...

A related point, I think paying employees only with stock options is also illegal for a startup. The stock options likely don't have much value in a startup, and also the employee may lose the stock options if they quit (or are fired) prior to their vesting date.

So, both interns and employees should at least be paid minimum wage unless the company literally cannot even afford paying minimum wage. That said, the company will probably only have a legal problem if the underpaid intern/employee files a complaint.