Venture investment rose 32 percent in the first quarter of 2006, with VC financing reaching its highest level in five years.

Investors backed more than 610 companies in the quarter with some $6.5 billion in capital, nearly a third more money than the $4.9 billion they put to work in the same period last year.

“Frothy” is the word on the lips of Silicon Valley investors, bankers, and entrepreneurs as getting financing is easier now than it’s been in the last five years.

Investors are competing to get into the hottest companies and are driving valuations higher. VCs paid 22 percent more for their stake in startups during 2005, according to VentureOne. That trend doesn’t seem to have abated in 2006, as startups raised an average of $10.7 million each.

The biggest deal of the first quarter was the $350-million investment in Clearwire, a WiMAX company founded in October 2003 by Craig McCaw, the cellular phone pioneer who sold McCaw Cellular Communications to AT&T in 1994 for more than $11 billion.

Clearwire won’t discuss details of the deal, but the company has already netted some $620 million in debt and another $100-million investment from BellCanada (see Startup Casts $1B into WiMax).

ITA Software got the next largest deal. VC investors included Sequoia Capital’s Mike Moritz, who said ITA would help airlines move beyond software that was developed before Woodstock. His firm, along Battery Ventures, General Catalyst Partners, PAR Investment Partners, and Spectrum Equity forked over $100 million to the 10-year old company (see ITA Nabs $100M in Equity Deal).

But the strength of the first quarter investment market was not limited to a few big deals. More than 300 companies raised between $5 million and $20 million, up from 200 companies during the same period last year, suggesting VCs are more willing to make mid-range bets.

VCs were also more willing to take on new companies than in the previous year, backing twice as many startups with first round investment during the first quarter than during the same period in 2005.