Infogami's Aaron Swartz (left), wearing a Foo camp T-shirt, Steve Huffman (center) of Reddit and Zak Stone (right) of Memamp share ideas on Y Combinator's office couch. View Slideshow 
Having just finished his sophomore year at Stanford University, Sam Altman spent this summer holed up in a Cambridge, Massachusetts, apartment paid for with a little bit of startup funding, writing code for hours on end and eating so much ramen he ended up sick from vitamin deficiency.
Altman loved it so much he hopes he and his two partners in discount noodles and 12-hour coding binges won't ever become juniors.
He might well get his wish. His fledgling company is close to signing a deal to test his location-based social-networking software with one of the country's largest cell-phone providers, and is in talks with prominent Silicon Valley venture capital firms.
The sophomores were just one of eight groups selected for three months of summer seed funding from Y Combinator, a startup incubator founded by Paul Graham, a writer and programmer known for creating the first web application.
Graham, a startup evangelist who sold his company to Yahoo in 1998, came up with the idea of paying students to program instead of working a summer job after giving a talk about startups to Harvard University computer science undergraduates.
He advised them to get their funding from angel investors who got rich in technology themselves.
"Then I said jokingly, but not entirely jokingly, 'But not from me,' and everyone's faces fell," Graham said. "Afterwards, I had dinner with some of these guys and they seemed amazingly competent and I thought, 'You know, these guys probably could start companies.'"
Soon after, Graham teamed up with an investment banker and two hackers from his old company, and the group announced the Summer Founders Program in late March.
Though hopefuls had only 10 days to respond, some 227 teams applied.
The eight groups that made the cut all moved to Cambridge for the summer, using the $6,000-per-person stipend to rent an apartment and buy startup necessities, such as whiteboards and bandwidth.
Y Combinator took care of the paperwork, including employee agreements and incorporation, and in return for the money and advice received a 5 percent to 7 percent stake in each venture.
The company also invested $4,000 in a custom-designed, 30-foot-long birch plywood table, complete with precarious bench seating for all, where once a week the coders and Y Combinator founders would share an indoor picnic and listen to advice from lawyers and war stories from successful entrepreneurs.
Those meetings were invaluable to Alexis Ohanian and Steve Huffman, recent University of Virginia graduates who holed up all summer in a subleased apartment's living room to create Reddit, a collaborative filtering system for news.
"I can't tell you the number of things we were able to bounce off other people," Ohanian said. "A lot of greatness of this program came from that collaboration."
Reddit is already live and has more than 600 registered users, even though "we haven't even put out the cool stuff," according to Ohanian. The duo also benefited from an angel investor get-together organized by Y Combinator, where they landed an investor who is funding them for another year.
Aaron Swartz, a rising sophomore at Stanford who is perhaps best known for co-writing the RSS 1.0 standard four years ago when he was 14, also landed funding from Y Combinator.
He's at work on web-based blogging software called Infogami that he hopes will let people create rich, visually interesting websites -- not just post stories in sequential order.
It's an idea he's been toying with for a while.
"Being around some of the bright lights of the technology world and having them expect great things helps you sit down and do it seriously," Swartz said. "The program has taken an idea that has (been) bouncing around my head and really forced it to become a reality."
Though he's only finished a single year at Stanford as a sociology major, Swartz said it is "looking likely" he will take some angel funding and not go back to school this fall.
Reddit's Ohanian refers to the program as "summer camp for startups," something that Graham says accurately captures his intentions.
"The Summer Founders Program fixes the common problem with working at a startup, which is that it's very lonely," Graham said. "You do nothing but work and sleep and no one understands the situation you are in, and friends don't know why it takes three days for you to call them back."
Y Combinator's point is not just to make money, but also to convince others to fund and start small companies of their own, according to Graham.
"There are all these great programmers out there who think starting a startup requires esoteric business knowledge," Graham said. "Our theory is that business is like chess -- the hard part isn't knowing how the pieces move, the hard part is being smart. So far, the result of this experiment seems to be that this theory is true.
"Our hope isn't that Y Combinator will end up seed-funding a large percentage of new startups, our hope is there will be a lot more startups. That seems just good for almost everyone."
To that end, Graham is already organizing a free, one-day startup school Oct. 15 and getting ready to fund a whole new group of entrepreneurial coders this winter.
While Graham's enthusiasm might remind some of the frothy internet days of old, companies with money are taking his campers seriously.
Indeed, Y Combinator got its first acquisition offer Aug. 16, just two and a half months into the program. The company's heads turned it down, either knowing or just believing it was worth more money.
