Would it be a red flag for investors if we (2 co-founders) have our entire team comprised of part time interns instead of full time employees? We are looking for a sizable seed round (between $1m to $2m) and have been bootstrapping the business by using interns. We'll likely continue to use the part-time interns strategy after the funding as well.
Nope. Many startups do this to keep costs manageable. I know a few funded startups that had large teams of interns as well. While having brilliant employees may add points in your favor, having interns does not take points away.
The one possible exception is if your interns are working on critical path tasks that may build up a lot of institutional knowledge. If you have a temporary worker in a key role, that could raise eyebrows.
Also, make sure you are aware of the laws regarding unpaid interns. There are federal laws and state laws to keep in mind. Here is more info from a federal standpoint:
I don't think having a team primarily of interns would concern investors; as Mike said, that's fairly standard for bootstrapping startups.
But planning on continuing with that post-funding would definitely be a red flag. There's no way you can attract and keep high-quality talent if you're not actually employing people, and paying them a decent salary. Investors will expect to know what the money you're raising will be spent on. If key hires aren't a part of it, expect them to think you don't understand what it takes to scale the business.