By SCOTT AUSTIN

Y Combinator is considered by many as Silicon
Valley’s elite start-up school, offering selected entrepreneurs a
three-month crash course to help them build companies and raise capital.

But about a five-mile drive up El Camino, on the third floor of AOL
Inc.’s offices in Palo Alto, Calif., another start-up accelerator is
emerging as a clubhouse of choice for some talented young entrepreneurs.

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SSE Labs is housed in AOL Inc.’s Palo Alto, Calif., office.

Only about a year-and-a-half old, SSE
Labs is drawing the attention of heavy-hitting investors in part because
of its direct ties to Stanford University, nesting ground to Cisco Systems Inc., Google Inc., Sun Microsystems Inc. and other giant Silicon Valley tech companies.

Venture capitalist Vinod Khosla,
a founder of Sun Microsystems and a Stanford alumnus, said he signed up
a month and a half ago as one of several investors who serve as
sponsors and advisors. Another venture capitalist, George Zachary, a
partner at Charles River Ventures and known for his early bet in Twitter
Inc., said he spends about two hours a week at SSE Labs as a mentor to
the student entrepreneurs.

“Most entrepreneurs are in their 20s, and they don’t understand a lot
of the issues around company building—learning how to recruit people,
how to create a vision, how to resolve conflict among founders,” said
Mr. Zachary, who wrote the first check to help get SSE Labs started.
“College doesn’t train people how to be leaders.”

That’s the aim of the student-led SSE Labs. While the university has
long served as a launchpad for innovation, it’s lacked the
infrastructure to provide students with all the nuts and bolts needed to
build companies, graduates say.

You’re Either In Or You’re Not

Like Y Combinator and other
popular business accelerators, SSE Labs chooses the brightest founders
from a large batch of applicants to participate in a weeks-long
mentoring program, in this case for the three-month duration of the
fall, spring or summer sessions.

Housing the start-ups thanks to a partnership with AOL, SSE Labs
brings in a host of mentors—venture capitalists, angel investors,
lawyers, serial entrepreneurs—to provide advice, while also offering
customized classes around logistics such as marketing and employment
issues, and providing resources like free web hosting via Amazon.com
Inc. and legal services from law firm Dorsey & Whitney. It also
holds a “Demo Day,” where its member companies pitch to investors.

But SSE Labs is different in a notable way, besides not taking any
equity in the start-ups like Y Combinator does. Operating as a nonprofit
division of the student government’s financial arm, it requires that at
least one founder have been enrolled as a Stanford student within the
last three quarters of the application period, and this founder must own
a significant percentage of the equity.

For that reason, SSE Labs is able to take full advantage of
Stanford’s rich alumni community of entrepreneurs, investors and
executives, ready to help out with not just money, but advice.

Other universities have incubators of sorts. The University of Utah
launched the Foundry a year ago to help students create businesses, and
Massachusetts Institute of Technology runs a well-established, two-month
mentorship program where selected students are paired with experienced
entrepreneurs or venture capitalists to compete for a $100,000 prize.
But, arguably, no school is more entrenched at the cross section of
high-tech and finance than Stanford.

“In Silicon Valley you’re either on the inside or you’re not,” said
Michael Carter, a co-founder of SSE Labs start-up Game Closure, which is
developing a multiplayer game development kit. “This program allows
students to join the in-crowd without having to spend three years
establishing contacts.”

Entrepreneurial Education, Easy Money

Including the current
crop of nine companies about to graduate, 20 start-ups have gone through
the program. Of those, at least six have raised seed capital, including
educational game maker Motion Math, which took part in last year’s
summer session and raised financing from angels including Mitch Kapor,
the founder of Lotus Development Corp.

Another five SSE Labs start-ups are in the midst of raising funding,
including Game Closure. The founders are mum when it comes to their
financing plans or investors, but access to capital isn’t exactly
difficult.

“We made one request through SSE Labs to get a meeting with a partner
at a venture capital firm, and within a week I was in the office
talking” to the investor, Mr. Carter said. “We’re able to move a lot
faster and get what we need without worrying about it.”

Their timing couldn’t be better. The emergence of SSE Labs is in
lockstep with the latest Web investment boom. That’s not lost on the
investors who serve as sponsors or mentors, who get an inside look at
the program’s young companies.

Mr. Zachary of Charles River Ventures, which has made 57 seed
investments in the past four years, including 42 in the past 18 months,
said he’s already backed two SSE Labs start-ups (he declined to name
them) and is working on closing a third deal. Mr. Khosla hasn’t invested
in any of the companies but said he might if he found the right one.

Stanford Support

But obtaining financing is not the point of
the program, organizers emphasize. “We have touchpoints with every
top-tier venture capital firm,” said Dan Ha, co-founder and managing
director of SSE Labs, who graduated from Stanford in December. “But our
top focus is the development of the entrepreneur.”

When co-founder Cameron Teitelman looked into getting a business
accelerator off the ground a couple of years ago, he talked to 220
former students who are now entrepreneurs to find out what Stanford
needed. The student government, which operates independently of the
university, had just scrapped a venture capital fund it created in 2008
called SSE Ventures that invested directly in student-led start-ups. The
best entrepreneurs were simply going to Sand Hill Road for capital.
What Mr. Teitelman found from their research was that the while the
student entrepreneurs considered Stanford a great educational resource,
there was little support when it came to starting a company.

Paul Graham, who heads Y Combinator, also sat down with
them for a few hours, Mr. Ha said, stressing the community aspect of
start-up accelerators–bringing entrepreneurs together allows them to
feed off each other but also creates an added element of competition.
(Mr. Graham couldn’t immediately be reached to comment.)

So after selling the idea to Stanford’s faculty and administration,
and despite some opposition from other student-led entrepreneurial
groups on campus, Messrs. Ha and Teitelman launched SSE Labs in the
summer of 2010 using money from Stanford Student Enterprises, which
makes about $16 million annually mainly from selling Stanford apparel
and distributing advertising-based coupon books. AOL provides the office
space, and a slew of professionals hold in-house office hours or
classes.

In three sessions, SSE Labs has received a total of 190 applications,
and accepted 20 companies. It’s evaluating more than 100 for the
upcoming summer session and is expected to accept as many as 18
companies, said Mr. Ha, who separately is developing his own start-up
with Mr. Khosla’s daughter, Nina, who graduated last year from Stanford
with a degree in product design.

“I wish I had more time for these young groups. Sometimes you get shocked at how much these 20-year-olds know,” Mr. Khosla said.

Write to Scott Austin at scott.austin@dowjones.com