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.