The above is valid only if kids without your product have to negotiate right now for every moment out of sight of an adult. I don't think that is true (in general) anywhere. That would be a terrible childhood (and adolescence). You are shrinking the time kids do have away from adult monitoring (at least as far as their location goes) to zero (with the unswitch-off-able version).
Just replace kids with employees. You can "negotiate" with your employer to not track you when you are off work, (he'll just get a message that you've switched off). So what's the problem? No adult will accept such a service (and there are good reasons for it). Why don't they apply to kids (including teenagers)?
But the problem isn't one of negotiation. The idea of subjecting anyone to potential 24 hour surveillance is terrible, especially when you dangle some bling in front of kids too young to realize what exactly they are opting into. Yes other people (including governments) are doing it but "he's doing it too" was never a valid defense.
(Imo) Kids shouldn't have to "negotiate" not being monitored every second of their lives. At least adults have the intellectual sophistication to think through the consequences of a leash like this and would flee from any such product like the spouses you interviewed, iow adults, are doing. Of course they aren't interested. Adults see the potential for misuse easily).
Kids are more likely to be too blinded by the thought of an IPhone to fully understand what they are giving up. And frankly I think only immature kids will ever consent to this kind for trackability.
I don't know you guys from Adam and I don't blame you for building this. You are trying to make money and not building anything illegal (I think). All I said is I think it is a slimy product (in other words ethically slimy not legally) and would never buy it for any kids I know.
This might make sense for very young kids or old people suffering from dementia or Alzheimers or something, but these don't need to be bribed to give away their privacy with an IPhone they couldn't otherwise afford.
All this needs is for one nasty incident for this to blow up in your faces. I am (slightly) surprised Apple allows this on their phones (and that YC is funding this. wtf?!!). As I said, not illegal, but (again imo, feel free to differ, ymmv etc) a somewhat unethical product.
To repeat, I am not condemning you as evil people. I do think you are being somewhat disingenuous with the "kids can opt in too" argument. Kids are not in a position of equal power with parents/other authorities for their "opt in" to have much value as a justification.
All that said this is your business. You (and your investors and customers) have to think this through. I am just a remote person expressing his opinion on the ethics of this thing.