Is It Appropriate For VCs to Charge a Due Diligence Fee?

Fred Wilson has a good answer up to a question that was posed to him the other day about VCs and fees .

Our startup company recently started seeking funding and the first firm we presented to has shown some interest. However, they have now sent us a Due Diligence Agreement and are requesting a “one time good faith due diligence payment of $9,000”.  Is it standard industry practice to charge the entrepreneur a fee for the due diligence? We are obviously short on cash – paying $9k to every VC who shows an interest in us sounds counterproductive.

The short answer is “no.”  Fred’s longer answer is great and the first comment nails it.