As such, learning that Rock You just raised $35M for Facebook apps, you have to wonder, how do the investors feel upon learning that just yesterday, the #1 in this “space”, Slide, signaled a shift in strategy by stopping to develop new apps.

The money did not come from dumb money:

The round was led by venture firm DCM, with contributions from several private investors. Previous RockYou investors include Lightspeed Venture Partners, Partech International, and Sequoia Capital.

But all factors being equal, VC-backed ad-supported companies are prone to fail: no freaking clue how advertising works and too arrogant to admit it, too.

Three months ago I asked “why is there no YouTube fund” to match Facebook or iPhone funds, even though online video will be far bigger than social networking ads, and wireless ads is really hype driven for the time being (for the record, I am far more bullish on the iFund than the FB funds). Today’s announcement by YouTube that content owners can sell ads against their own content and monetize their content is validation and support of my argument that there is a need for a YouTube fund. After all, online video ads in the US is supposed to grow from $1.25B in 2008 to $7.1B by 2012… while social networking revenue projections are being reduced. To drive the point home: YouTube’s market share in video is more strangling in video than Google’s is in search, yet right now, YouTube only does $75-200M in annual revenues… so the upside - while both clear and unclear - is there.

As I said, some investors must be waking up today feeling rocked.  To see how something so stupid can even happen, click here.