It is the best time to raise money in four years.

Venture capitalists are giving entrepreneurs more money in exchange for a piece of their companies than any time in the last four years. There is so much money out there that entrepreneurs are negotiating for higher valuations for their companies — forcing VCs to give them more money to get a meaningful slice of ownership.

The median pre-money valuation of U.S. venture backed companies reached $16.8 million in the third quarter, a 29.2% increase from last year and highest since the second quarter of 2001, according to a report today from VentureOne (sub to VentureWire required).

“The recent rise in valuations is due in part to the rise in prices in liquidity for venture-backed companies, particularly for M&A transactions,” said Josh Grove, research analyst at VentureOne. In the third quarter of this year, the median amount paid for a venture-backed information technology company in a merger or acquisition was $59.5 million, the highest it has been since 2000, and about $25 million more than companies were paying a year ago.

While the current median valuation figure still sits well below the mark at the peak of the high-tech bubble – $29.8 million in the first quarter of 2000 – it reflects a significant increase from $9.1 million in the second quarter of 2003 during the downturn.

The difference between the valuations of 2005 and those of five years ago, Grove said, is that later-stage investments, rather than deals with young start-ups, are fueling the increase.