Is it a bubble, or is it just a darn good time to be seeking venture financing? Or are entrepreneurs getting savvier?

A new report from Silicon Valley law firm Cooley looks at the specifics of 82 venture capital deals the firm advised on in the second quarter of 2011. Some of Cooley’s findings could be interpreted as signs of a bubble in venture capital financing, but other nuggets suggest that entrepreneurs may be becoming better negotiators.

Here’s what Cooley found:

82% of deals were up rounds. Ideally, all deals would be up rounds. An ‘up’ round (as opposed to a ‘down’ round) signifies that the company is worth more this time around than it was during its previous investment round. In a perfect world, entrepreneurs and their teams create value, and the worth of their company increases. Another explanation is that a rising tide - or bubble - could be floating all ships.

Pre-money valuations are up. Investors are assigning companies a higher value even before they put their money in. In the first quarter, the median Series A valuation (the median amount a company is worth just before it gets its first institutional round of financing) was $11 million. That compares to just $6 million three months ago. Are entrepreneurs really creating twice as much value in early stage companies as they were three months ago? This survey looks only at the deals Cooley worked on, so there might be something odd about this particular set of investments. Otherwise, this one screams ‘bubble.’

Participating preferred is less common. Just three months ago, 51% of deals had participating preferred. Now, just 32% of deals include this feature.

Participating preferred is a way for investors to try to ensure they get their money back even if the company doesn’t have a great exit. Say a venture capital firm buys 30% of a company for $5 million, and there’s a 1x participating preferred (which used to be standard). Those VCs will get their $5 million back, even if the company sells for just $10 million. If there’s a 2x participating preferred, the investors will get all $10 million.

Maybe there’s less participating preferred because VCs are competing harder to win spots in good deals. Maybe, because participating preferred has become a hot-button issue in some circles, VCs have figured out how to get their returns elsewhere. Or it could be that entrepreneurs are doing more research about term sheets, and becoming better negotiators.

There were fewer tranches this quarter. Just 15% of deals had tranches, compared to 22% in the first quarter. If a deal has tranches, it means the startup doesn’t get all of the money when the deal closes. Instead, each “tranche” (or slice) is doled out gradually. Generally, a company will get a tranche when it meets certain milestones.

Pay-to-play is almost gone, at least from early stage deals. Pay-to-play provisions encourage investors to put more money into a company in future rounds of funding. If investors decline to do so, their preferred stock converts to common or loses some of its other bells and whistles. This quarter, Cooley saw pay-to-play only in Series C deals - companies that are relatively far along.

For all we hear about a bubble in early stage funding (and there may indeed be one) I do think entrepreneurs are getting savvier about negotiating term sheets. There are a number of great VC blogs (Feld Thoughts and Both Sides of the Table come to mind) that explain seemingly-arcane provisions, and there are successful entrepreneurs who are willing to mentor the newbies. A more complete understanding of term sheets can only lead to better deals for both sides.