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What they mean
If you have reached Seed, Series-A etc then you have raised money before (well, for the most part!). Investors want to know who is on your ‘cap table.’
Assuming this investor does not know you very well, then this is a good way for them to qualify whether or not you are good company. If you got great investors in your previous round then you must be okay. It’s country club rules. Investors also like to invest with people that they know, like and respect.
So, if your investors are friends with this investor, then David gets to call up John and have a chinwag about internal information. Of course, John will probably lie a little and give a rosier picture to David… Investors want to make money right, and ensure you get funded (Investors know this) ?
You should just be straight up, in short. There’s nothing really to hide here and you can’t really.
The important thing to understand is that once you name names, certain types of VCs will just email/call those investors and ask about you. You need to make sure you have briefed your investors before you start raising. Everyone needs to sing from the same hymn sheet. How dumb would it be if one of you angel investors said ‘oh, sure happy to talk? Didn’t know they were raising?‘
What you need to say
“Index led our a-round. We also raised money from some great entrepreneurs in the valley through my contacts in Google. Index is, of course, interested in participating in the round, but we want to make sure we get market rates”