Venture financing increased nearly 15% during the third quarter, as VCs reported seeing better deals and a resurgence of entrepreneurship.

VCs put nearly $6.5 billion to work in more than 800 startups during the third quarter, up from $5.6 billion invested in more than 770 startups during the same period last year, according to preliminary PE Week research. A final tally is due Oct. 24 from the MoneyTree Survey by PricewaterhouseCoopers, Thomson Financial (publisher of PE Week) and the National Venture Capital Association.

Plus, VCs financed their companies earlier in their development this year than they did last year. Almost 460 early stage companies raised financing during the third quarter, up from the 360 that got cash during the same three-month period in 2005.

“There’s a lot of activity going on,” says Formative Ventures General Partner Clint Chao. “We’re seeing a pretty busy slate of deal flow coming from all directions.” He attributes at least some of the increased interest in entrepreneurship and deal flow to large liquidity events in the Internet sector, such as the $1.65 billion that Google paid to acquire YouTube this month and the $1 billion pending sale of Facebook, which has been rumored to be an acquisition target of Yahoo for months.

“The entrepreneurs have finally forgotten about 2000 and 2001,” says Granite Ventures Managing Director Len Rand. “We’re seeing a lot of first-time entrepreneurs and a fair number of experienced people coming through who made a fair amount of money previously and have been working on something new in stealth, funding it themselves. Those people are starting to feel there’s a chance for venture money because the bad taste has left the room.”

The experienced entrepreneurs may be savvier negotiators, however. The average investment size increased during the quarter, a sign that startups may be getting bid up. The average amount put into each deal increased to more than $8 million, the highest it has been since 2002, and a nearly 10% leap from the $7.3 million average deal size during the third quarter of 2005. “We’re seeing an up-tick in quality deal flow,” Rand says. “We’ve seen valuations trend up a little bit, but we see enough institutional memory out there to prevent valuations from getting so high to where the opportunity for return multiples is in the sewers.”

One of the sectors where bidding is sure to be steep is cleantech. Fund-raising for the sector was fast and furious during the summer as firms such as Expansion Capital Partners, Technology Partners, Nth Power and DFJ Element raised limited partner commitments to feed their cleantech war chests. Now they must put that money to work. The industrial and energy sector, which encompasses cleantech deals, saw a more than 300% jump in investment dollars. VCs put more than $700 million into 50 companies, up from almost $175 million into 35 companies during the third quarter of 2005.

Likewise, the media and entertainment segment, which includes various Internet and consumer plays, also saw big gains. VCs put nearly $415 million into 74 startups in the space during the third quarter, an 88% gain from the $220 million invested in 43 startups during the same period last year.

However, in the third quarter, software was still the most popular sector for VCs as they backed 178 deals. In software, dollars invested slid down 4% to $1.09 billion, compared to $1.15 billion that VCs invested in software the third quarter of last year.

The increases in investment come as venture fund-raising slowed to a crawl, as only 52 venture funds raised $4.9 billion during the third quarter, according to data collected by the National Venture Capital Association and Thomson Financial (publisher of PE Week). The Q3 totals were down from the second quarter of this year, when 62 funds raised $13.4 billion, as well as Q3 of 2005, when 62 venture funds raised $5.6 billion.