Now is a great time for the true entrepreneur to raise venture capital.The current macroeconomic climate makes even contemplating starting a new company an act of a courageous soul. And while it may be one thing to start a company, it is quite another to start a high-tech company, to do so in Israel with tensions in the region at a high, and to aim to fund such company with venture backing during one the most gloomy periods in the history of the venture industry.

After all, private Israeli companies raised almost half as much money in 2002 as they did in 2001, and a third fewer companies raised money at all. Seed stage companies seemed to be hardest hit, constituting only two percent ($23 million) of the total funds raised in 2002, compared to five percent ($95 million) in 2001 (IVC survey). Against this background, the fact that there are entrepreneurs still out there with a willingness to start new companies and dream about bringing their innovative ideas to millions is nothing short of miraculous.

Or maybe not. Maybe it is not sublime but rather ridiculous that people are still looking to create and fund startups in the IT arena. The days of the IT revolution are over, people – don’t you get it??!!

I’m not sure I agree with that line of argument. Yes, it may be ridiculous to pretend, as we did in the late 90s, that almost every new idea is worth considering for funding and every entrepreneur, no matter how inexperienced, should be heard. But I would argue that while this is not a good time to be a good entrepreneur, this is a great time to be a great entrepreneur.

The period of hype is over, so the truly exceptional entrepreneurs can indeed make themselves heard over the crowd. Funds are no longer bombarded with hundreds of new half-baked plans every week, nor is there the pressure to make quick investment decisions or risk losing out on a “hot” deal. We are all acting more like professionals. Taking time, learning the opportunity, crafting a plan, understanding the competitive landscape, and picking only the very best.

The markets are brutally weeding out mediocrity. Even above-average companies are closing, even above-average managers and employees are being laid off, and even the strongest venture funds are closing or reducing their fund sizes. The funds are focusing on nursing their current portfolios, and spending more time on due diligence before making new investments. The playing field has been leveled between the entrepreneur and the financier both parties have been humbled, and the quality of business plans has improved as a result. Indeed, a recent survey by Dee Power and Brian Hill in the US shows that US venture capitalists believe that they are seeing higher quality business plans today than in the past.

Instead of seeking a quick uptick in valuation and a rapid, even if premature, rise to IPO the best entrepreneurs and the best VCs are refocused on building long term sustainable businesses over time. Yes, if your sole motivation is to time the market and get rich quick be honest with yourself, you know who you are – you’ve probably missed the boat. But if you have the heart and soul for a long difficult ride, in which anything less than excellence goes largely if not completely un-rewarded, now’s a great time to be making the transition from a pre-seed to a venture-backed company.

After all, while the key matrices of activity in the VC sector in Israel – $ investment level, average deal size, and number of active funds – have come down to 1998 levels, let’s not forget that 1998 levels are objectively very impressive for a country Israel’s size. That year saw $1 billion in venture investments, over 350 companies that raised money, and an average of about $3 million per venture round. While pure Internet companies have understandably fallen out of favor, other areas, where Israel’s competitive advantage is arguably much stronger, continue to garner the lion’s share of funding namely communications, enterprise software, and life sciences.

So, what then is required of the entrepreneur looking to make the transition from pre-seed to venture? Here are some brief comments on what we at JVP see as the key criteria for winning venture funding:

Management – companies live and die because of their management teams. The emphasis here is on the word “team.” Founders must realize that in order to truly succeed, they need to build something much larger than themselves. Be generous with your employees and you will be rewarded. A winning founder continually recruits and surrounds him or herself with smarter people. Set aside your paranoia about giving others decision-making authority or letting the board help you with recruiting. In my experience, those founders in our portfolio who were reluctant or slow to recruit great talent around them have ended up with failing businesses. Those with the courage to bring in more seasoned veterans have found themselves wishing only that they had done so sooner. VCs like to see teams with deep experience in multiple disciplines R&D, engineering, sales & marketing, finance, operations, with people who have done it before namely converting a unique technology into an actual product that customers need.

Markets / Knowledge of the Customer – Don?t live by the boring claim that it’s good to be a small part of a large market. It’s not. If this is the way you approach your business, chances are you’ll end up being no part of a large market. In many cases, it’s better to be a large part of a small market. In this way, you can be the dominant player, own your customers, and enjoy higher margins. VCs don’t want to hear about your plans to get 1% of a multi-billion dollar market anymore. Show us real numbers, revenue forecasts derived from specific discussions with specific customers, and how, as a leading player, you will grow along with your market, and not be left behind by larger competitors.

Technology – Be clear about how your technology is differentiated. Whenever I ask a software entrepreneur whether Microsoft could do this, the answer I invariably get is “sure, there is little Microsoft can’t do if they want to. It’ll be hard, it’ll take them six months, but they could do it.” Well, that’s not a good answer. If I’m your typical VC in Israel and I’m going to be doing maybe one or two software deals this year at most, I want to invest in something that is truly unique, that requires thinking completely out-of-the-box, and that very few people in the world, including at Microsoft, could ever conceive of, never mind deliver.

Financial/Operational Planning – How many people are going to be in your company in 12 months? In 24? What is going to be the breakdown between R&D and marketing? What is the average salary in the company (hint lower is better)? What level of revenues will you have next year? The year after? Really. Don’t give a “conservative” estimate that you won’t hit. Don’t make gross assumptions based on third-party market data. Companies that miss forecasts in today’s markets go bankrupt, unless they have exceedingly forgiving VCs.

Moral/Ethical Maturity – Asking for and receiving money from VCs brings with it a moral obligation to act in the best interests of those shareholders. This, of course, is part of the “ABC” of corporate responsibility, but you’d be amazed how many entrepreneurs forgot about this during the years of hype that preceded the current downturn. Don’t take money from VCs unless you are prepared to listen to them, even when times are tough and you don’t necessarily like what they’re telling you. Seriously. If you want to continue doing things your way only, then continue bootstrapping your business or grow it organically, but don’t ask the VCs to contribute $ millions of other people’s money.

If you are an exceptional entrepreneur, with an exceptional business idea, and you are ready for true partnership in building your business, I submit that now is a great time to be out there raising money. For if you succeed in doing so, you will already be a great step ahead of your peers from the late 90s: you will have met funding criteria that are much more stringent than in the past and you will by definition have VC partners who have survived at least part of the storm and who have learned the hard way how to help companies navigate rough waters as well as smooth.

Originally appeared in Globes.