All does not appear to be well in the venture capital industry, to judge by the move by Sequoia Capital, one of Silicon Valley’s most prominent investment firms, to broaden its business to include everything from shares to property.

That follows shifts by two of the UK’s longest-established venture capital firms - 3i and Apax Partners - away from early stage investing and towards buy-outs of established companies.

Sequoia’s move would make it look more like one of the private equity firms, such as Blackstone and Carlyle, which have raised funds to invest in all kinds of assets. Property investment has been Blackstone’s highest-return business.

But the fact that Sequoia may follow is a big symbolic shift. Under its lead partners Michael Moritz and Doug Leone, it has been an early investor in many of the biggest Silicon Valley successes of recent years, including Google, Yahoo and YouTube.

If even Sequoia is feeling the need to diversify, what does that mean for the rest of the venture capital industry?

My column in the Financial Times this week is about the need for better incentives and simpler regulation of investment banks, rather than a vast new regulatory infrastructure and set of rules. You can read it here and comment below.

So far so good - or at least, not too bad - seems a fair assessment of how the financial crisis has so far treated hedge funds. Although some have collapsed, including two managed by Bear Stearns, and others have hit trouble, they have generally done better than big financial institutions.

One hedge fund manager I talked to this month estimated that hedge funds with equity of about $15bn had so far been mortally wounded in an industry that now manages $2,000bn of assets. He compared this to financial institutions such as Citigroup and Merrill Lynch (and now Bear Stearns) that had suffered more.

But I do not think we have yet seen the full impact of the financial crisis on hedge funds. As banks that have kept hedge funds in business by lending them money and providing other services pull back - and it becomes much harder to leverage equity with debt - some funds will face a colder climate.

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I am afraid that I forgot to post a link to my column on Saturday in which I tried to explain to Weekend FT readers that Bear Stearns employees really were suffering from the collapse of their institution. The email responses I received were equally split between those who thought I was too kind, and those who thought I was too harsh, to Bear. You can post comments below.

Hmm. Well, we have now seen the terms of the JP Morgan’s revised $10 a share offer for Bear Stearns and I do not think it is a good outcome for the Federal Reserve.

The Fed does gain something from the new deal - JP Morgan takes on liability for the first $1bn of losses from the $30bn portfolio of illiquid assets that it guaranteed as part of the first agreement.

In return, however, it is allowing Bear shareholders to get five times the original price for an investment bank that was in effect insolvent 10 days ago without the backing of the taxpayer.

We have moved an awfully long way from 1998, when the New York Fed was criticised for simply calling a meeting of Wall Street banks to organise an attempted rescue of the hedge fund Long-Term Capital Management.

This time, the Fed has not only committed public money but has allowed the deal to be renegotiated in a way that grants Bear’s shareholders a bigger reward.

The Fed can argue that the structure of the new deal is in some ways preferable and the Bear shareholders still get relatively little for their equity. From that point of view, the Fed has minimised moral hazard while keeping Bear afloat.

The fact remains that it has been dragged into a public fight involving JP Morgan and Bear shareholders and has had to accept a further compromise. That cannot be a good thing for its authority.

Is JP Morgan about to give in to Bear Stearns’ angry shareholders and offer five times its original $2 a share price?

So Andrew Ross Sorkin says in the New York Times this morning:

Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price.

The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people.

I do not understand how the Federal Reserve can stand behind the deal on anything like the original terms if JP Morgan is going to pay more.

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Things happen very rapidly in a crisis. A week or two ago, the Federal Reserve was still hesitant about providing back-up finance for investment banks on the same terms as the banks it regulates.

Now, the Fed has not only extended back-up financing to Wall Street primary dealers following the Bear Stearns collapse, but has its sights set on taking over their regulation from the Securities and Exchange Commission.

It makes sense for the regulatory division that mirrored the Glass-Steagall Act separation of banks and brokers to break down now that banks and investment banks compete directly with each other.

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My Financial Times column this week is about Bear Stearns and how it was not merely a victim of the credit crisis because its leaders brought it on themselves. You can read it here and comment below. 

Time lends perspective and having a couple of days to absorb about how the Federal Reserve acted over Bear Stearns has helped to clarify its intervention policy, which was devised on the hoof over the weekend.

Although there was a lot of worry about moral hazard - the US government protecting those who should not be protected from their financial errors - the Fed clearly tried to avoid it. It wanted to prop up Bear to avoid a fire-sale of its mortgage securities but did not want to give too much comfort to others.

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Well, no-one can complain that Erin Callan, Lehman Brothers’ new chief financial officer, lacked detail on the investment bank’s first quarter results conference call this morning.

Ms Callan rattled through a very long and thorough explanation of the bank’s earnings, balance sheet and liquidity, with the emphasis on the latter.  Given that Lehman has been fighting to persuade people that will not become the next Bear Stearns, that was wise.

Ms Callan faced some credibility questions. She has only just been appointed to the job, lacks an accounting background, had to take an exam before starting, and gave an interview to Portfolio in which she emphasised her interest in strategy rather than number-crunching:

“I see myself in more of the strategic camp. When you don’t grow up in the accounting profession and you grow up more as a deal person, your bias is to look much more at the big picture.” Otherwise, she says, “you really could consume yourself entirely just staying in the weeds.”

She obviously realised, however, that in the weeds is where investors and other banks want her to be at the moment. To judge by the market reaction, she convinced them.