Steer way clear of free work, unless you're building your first 1 or 2 sites in your portfolio. You only need to prove that you can build something really good, and you could pretty much do a side project or two to do that. Your clients will want to dictate what the design looks like, so in many cases, you'll end up with a project that you're too ashamed to put on your own portfolio. Unfortunately, designers don't always get to do their job because the client thinks they can do it better with zero experience in the field. "What's this? White space!? That's absurd! I'm paying you, I can't have any of that nonsense!"

Working with the wealthier clients (ie startups who are funded) is a world more rewarding than the nickel and dime people who want everything and then want to negotiate for a lower bid. Wealthy clients are decisive and they let you do your job, so everyone wins--they get a good website, you get payment, and you can be proud to put the work on your portfolio.