Start up. Drop out. Welcome to the Garage.

October 30, 2014, 11:28 AM UTC
Ayush Sood and Karthik Viswanathan
contract Armin Harris
Photo by Cody Pickens for Fortune

Whenever an idea for a new product or startup pops into Ayush Sood’s hyperactive mind, he jots it down in one of his two black notebooks. It’s something he’s been doing with remarkable frequency since his freshman year at Stanford in 2010. Four years later the notebooks are home to some 700 ideas. A sketch for an extensible power strip borders another for an app that encourages people to take breaks. “Taking breaks increases productivity,” says the 22-year-old as he thumbs to the next page. Here are notes for a community-sponsored radio that would run fewer ads the more people donate, and an app to make it easy to connect donors with charities. A few pages away are a Kickstarter-based scheme to help jewelers make custom designs…and an app that trims your health care premium when you check in at the gym…and a service to give your next of kin access to your online life after you die. The list goes on, in pencil and ink, with scribbles, drawings, and questions in blue, black, red, green, and yellow.

“Some of them are ‘Why aren’t people doing this?’ Others are cool but not necessarily a business,” says Sood, running his fingers through an unruly thicket of black hair. He has a bright, easy smile that he flashes with the confidence of someone who rarely has to try hard to excel. In the smartest, most tech-savvy university in the smartest, most tech-savvy corner of the U.S., he is quite possibly smarter and more tech-savvy than most.

But Sood is something else too—a living window into a challenge that gets little ink in the annals of Silicon Valley entrepreneurship: the messy, laborious process of coming up not with lots of ideas, but with the right one.

It was partly in the pursuit of that goal that last year Sood and fellow Stanford student Karthik Viswanathan, now 21, helped found the Garage—a kind of DIY proto-accelerator for some of the school’s top comp-sci whiz kids. Its aim is twofold: First, to broaden their horizons by exposing them to business sectors most college students know little about, be it retail, health care, or manufacturing. Next, to help shoot down nearly as many clever, quirky, distracting brainstorms as the group comes up with in order to narrow each member’s focus on an idea that matters. In a universe of “maybes” and “could be’s” and even “hell, yeses,” the Garage is there to provide a few sensible “nos.”

The group’s nearly a dozen members chose one another through an informal process in which Sood—then a college senior who had already been admitted into a master’s program—and Viswanathan, a junior, nominated a couple of classmates, who in turn nominated a handful of others. Everyone had previously worked on at least one entrepreneurial project with another member. For the past year or so they have been meeting regularly in the Palo Alto offices of the Garage’s other co-founders: venture capitalists Pejman Nozad and Mar Hershenson, who have played critical roles as conveners and mentors but rarely funders or investors.

Mar Hershenson and Pejman NozadVenture capitalists Mar Hershenson (left) and Pejman Nozad have turned their Palo Alto offices into an entrepreneur clubhouse.Photo by Cody Pickens for Fortune

While the group’s name is a hard-to-miss wink at Valley lore—Hewlett-Packard, Apple, Google, and countless other tech icons were hatched in area garages—the word’s traditional meaning has even more resonance for Sood and his schoolmates. Their garage is a place to park: Away from the hustle of campus, it’s a haven where they go to tinker, encourage one another, and—this being the epicenter of Startup Nation—have near-weekly bull sessions with the likes of John Doerr, the legendary venture capitalist who backed Amazon, Google, and Netscape; Mark Pincus, the founder of Zynga; and Jerry Yang, the co-founder of Yahoo.

The all-star access comes courtesy of Nozad and Hershenson, who last year founded a boutique VC firm, Pejman Mar. Nozad, an Iranian immigrant and consummate networker, began his own investing career by helping finance the startups of some of his customers at an Oriental-rug store in Palo Alto. He helped provide some of the earliest funding for Dropbox and Danger, maker of a popular, pioneering smartphone called the Sidekick. Hershenson is an entrepreneur from Spain with a Ph.D. in engineering who taught at Stanford for many years. The quirky duo have opened up their Rolodexes to Garage members whenever they need advice. They have taken the kids on field trips—including a trek to the San Francisco headquarters of Dropbox to chat with CEO Drew Houston. There are no strings—financial or otherwise—attached.

If there is a business model behind all this investment of time and energy, it isn’t readily apparent—unless one counts “pay it forward.” Indeed, that does seem to be the driving force behind the endeavor, though Nozad and Hershenson get a scouting advantage from their generosity too. “I thought, If we can get 10 top students, help them learn, help them build a product, something good will happen,” Nozad says. “In the long run we may end up with some of the best companies to come out of Stanford.”

For now, the effort is yielding, well, more nuanced results. Even in the land of unlimited startup conceits, it can be hard to find one worth doing. Which makes the Garage one of the more fascinating social experiments in tech.

John DoerrPioneering VC John Doerr, one of many Valley luminaries to visit the Garage, gives a whiteboard talk to the members in January.Courtesy of Pejman Mar Ventures

The firm of Pejman Mar is in a squat, two-story gray building with a squarish façade on the edge of Palo Alto’s commercial district—an odd outcropping of construction that fits in with neither the slick modern buildings of downtown nor the quaint residences that surround it. Until recently it was home to the Daily Post, a scrappy local newspaper. These days it serves as headquarters for the Garage. The upper floor is a large room with low ceilings and exposed rafters, filled with a dozen or so sitting and standing desks topped with computers. On a recent evening the desks have all been pushed aside, and a crowd of (mostly) twenty-somethings sit in a tight, seemingly predatory circle around Doug Leone.

It’s not hard to understand why. Leone is not the best-known Valley VC, but over the years his firm, Sequoia Capital, has backed giants like Google, Yahoo, and LinkedIn. And it’s fresh from another “exit” that ranks as one of the best VC deals of all time: The roughly $60 million that Sequoia bet on WhatsApp will net it a whopping $3 billion once the $19billion sale of the messaging company to Facebook is complete. So the Garage kids, along with a couple dozen other guests, who include the co-founder of Pejman Mar portfolio startups, are hanging onto his every word. Some are balancing paper plates on their knees, nibbling on a sandwich or snacking on falafel, hummus, and pita. The whir of a couple of fans near the balcony makes for a soft background to Leone’s voice. The nuggets of wisdom spray in like buckshot: Don’t raise too much money. Build a business you can describe in one line. Focus on alleviating someone’s pain point. Culture matters enormously. Your first engineering hire might be your most critical. Stick to your vision. “We stay away from the tourists—those who want to make some quick money,” says Leone.

None of the Garage members seem to fit the tourist profile. Sood, for one, had only a vague sense of the notion of entrepreneurship before college but is now hooked. Born in St. Paul, he moved with his parents back to their native India for seven years before returning to the U.S. While attending high school in a Cleveland suburb, he found himself applying for early admission to Stanford and getting in. (He’d never paid much notice to the school until he started watching Chuck, an NBC show about an underachieving former Stanford student who works at a consumer electronics store.) Right from the start, Sood was drawn to computer science because it allowed him to build things.

Stanford has already produced a long line of great builders, of course—Bill Hewlett and David Packard, Larry Page and Sergey Brin. There are now scores of classes in different departments designed to help students develop commercially viable products. StartX, a Stanford-backed accelerator modeled after the popular Y Combinator program, gives student entrepreneurs some financing and the chance to test their ideas. Yet for all of Stanford’s embrace of the startup culture, Sood found it difficult to work on projects that were not related to classes. He joined and organized hacker clubs and computer programmer groups but ran into roadblocks when he tried to organize a hackathon. Lab space with equipment like a 3-D printer was hard to find. “I wanted a place where you could walk in and not be allowed to work on homework,” he says.

Ayush Sood Karthik ViswanathanGarage Co-founders Karthik Viswanathan, left, and Ayush Sood..Photo by Cody Pickens for Fortune

Through a friend, he and Viswanathan, who was his partner on some side projects, met Nozad and Hershenson. As with most things in the Valley, the Garage evolved quickly. What started with weekly evening talks and Sunday hacking sessions soon jelled into a tight-knit community. “The Garage students are one of the biggest draws to being in the Garage,” says member Amrit Saxena, 21. “They’ve inspired me. I see them making progress, and it makes me want to make progress on my project.” Saxena, it’s worth noting, is the sort who, when he was in the market for a new Honda Civic, coded an app to get Bay Area dealerships to bid against one another for his business, ultimately getting the car for about $3,000 below market.

Catherine Lu, the group’s only female, is another self-starter. In the summer of 2013 she was an intern at Google on the team that built Wallet. But like her fellow Garage members, she thinks she can learn more by working on her own project. “The rate at which I was learning was slowing down,” Lu says about her internship. “This isn’t something against Google. It’s something I would have faced at any big company.”

Ambition runs thick in the club, but it’s tinged with idealism. Members say they care more about doing something meaningful than about getting rich—and they’re particularly scornful about what has become the preferred path to entrepreneurial gold among the college set: social apps. To this bunch, finding “the next Snapchat” has the same odor that joining a hedge fund has for an Ivy League art major. Says Saxena: “I didn’t want to get caught up in the Silicon Valley equivalent of Wall Street.”

On a sunny weekend afternoon this past spring, Sood, Viswanathan, Nozad, and Hershenson are gathered around a conference room table evaluating some 40 “applications” for startup businesses. The prize isn’t a round of seed or Series A financing, but rather a stipend for the summer, along with group validation and collegial support. Some of the proposed ideas are from Garage members. But what’s being called the Garage’s “founders program” is open to other students affiliated with Stanford.

One team wants to streamline email. “I like this a lot,” Hershenson says, as Sood vouches for the team’s technical chops. She shakes her head at another project—it’s too far along. A snack service for new mothers gets nixed because it’s not technical enough. As evaluators of startups, Sood and Viswanathan sound as if they’ve soaked up some wisdom from the Valley luminaries who have spoken at the Garage. “Everyone who is trying to replace credit cards fails, but everyone who builds on top of credit cards succeeds,” Sood says as he gives a thumbs-down to a team proposing a new financial app.

Three teams that have come together through Garage get the nod. One of them is Fluxy—Sood and Saxena’s own idea for a dynamic-pricing service allowing restaurants to charge more during rush times and less when it’s not as busy. Another is a trio that includes Viswanathan, Lu, and Karanveer Mohan, a junior. They are working on a service, called Scoryst, that would streamline the grading of homework and exams. The last is a project, dubbed Robyn, by Ray Zhou and Shubham Goel, who as sophomores are the youngest Garage members. Robyn is a productivity tool tied to email that aims to help VC and private equity firms track their interactions with companies seeking financing more effectively. The pair is getting additional mentoring from Formation 8, a VC outfit in San Francisco. The projects may not necessarily live up to some of the idealistic goals of the group, but they sound promising.

Shubham Goel and Ray ZhouShubham “Shooby” Goel (left) and Ray Zhou have found some early success—and, importantly, financial backing—for their startup Robyn.Photo by Cody Pickens for Fortune

Still, by demo day—that rite of passage for incubators when entrepreneurs show outside investors what they’ve done—it’s clear that promise is not enough. Neither Sood and Saxena nor Viswanathan is presenting. Viswanathan has dropped out of the Scoryst team. The coding part was fun, he says, but Scoryst was not just coding: The group had to go door-to-door, so to speak, to persuade professors at Stanford and other schools to give it a try. That was just not his thing. “I didn’t consider all the nontechnical aspects, and they are as important as—if not more than—the technical challenges,” says Viswanathan. Did no one warn him that starting a company wasn’t just coding? “Various speakers at the Garage have told me this, but I didn’t really believe it until I ran into it myself,” he says.

The Fluxy team ran into similar hurdles. Although the group made some progress, the project flopped for a prosaic reason. After knocking on the doors of dozens of restaurants around Palo Alto, the group realized it would need a massive sales force to reach any kind of scale. “It was difficult to come close to the throughput we needed,” Sood says.

But summer wasn’t all disappointments. Lu and Mohan have not given up on Scoryst. “This is something we care about deeply, and we want it to be useful,” says Mohan. While they are back in school, both getting their master’s degree, classes are no longer paramount. “Of course, we want to learn, but getting the final grade is not our priority,” says Lu. “Working on Scoryst, I learned so much about software development that is not taught in class.” About 10 high school classes around the Bay Area, one at Southern Methodist University, and a few more at Stanford have agreed to use the application.

Surprisingly, it’s the youngest members of the Garage—the Robyn team—who seem closest to living the startup dream. During his demo for investors, Zhou, who is 20, announces that he’s not enrolling for his junior year so that he can work on Robyn full-time. (He’s not dropping out, he says, just taking a leave of absence.) Goel, who is 19 and on a student visa, can’t do the same, so he plans to finish his degree, but it’s not hard to see where his focus will be. The team snagged a partner with serious tech cred: Joe Lonsdale, a serial entrepreneur and venture capitalist who co-founded Palantir Technologies, now valued at some $9 billion. “They found what they want to do, and it’s something they’re really good at,” says Lonsdale, who is a partner at Formation 8, the firm that worked with Zhou and Goel on honing their ideas. And Pejman Mar is investing too.

Despite his own startup fizzle, Sood is happy for them—and for what was achieved through the Garage. “It’s been a big learning experience, I think, for all of us,” he says. He is taking some time off before finishing his master’s and is working on another project (to help retailers manage their inventories) with Garage-mate Saxena. If that doesn’t work out, his notebooks have plenty of unexplored ideas left. “I want to give myself a couple of years,” Sood says. “If when I’m 25 or 26, I haven’t built anything useful, I’ll consider getting a job.”

WATCH: Garage hopes to tap Stanford magic with startup incubator

This story appears in the November 17, 2014 issue of Fortune.