Many new startup companies are raising capital through an regulated form of crowdfunding known as an initial coin offering, or ICO. In ICOs, companies issue a cryptocurrency, or virtual coin, which they sell to investors for either legal tender or another form of cryptocurrency. The cryptocurrency is sold through blockchain technology. Though an ICO may appear, on the surface, like an initial public offering, there are quite a few differences investors should be aware of. For instance, whereas stock offerings give investors ownership rights, ICOs do not; and whereas bonds involved investors lending money to the bond’s issuer, ICOs sell the virtual coins. As such, it is possible for investors to lose the funds they invest in a company’s ICO without any possibility of recovery.

Additionally, in only some ICOs are the cryptocurrencies classified as securities. If they are, the coins (or tokens) fall under federal securities laws and regulations. For this reason, the Financial Industry Regulatory Authority (FINRA) recently issued some guidance about the risks investors face when they invest in initial coin offerings. Investors can also read more about ICOs at the Securities and Exchange Commission (SEC), Investopedia and elsewhere.

Anyone considering investing in an ICO should start by asking whether it is a securities offering. If it is, the ICO must either be registered with the Securities and Exchange Commission or qualify for an exemption from registration; if the offering is exempt, investors may be required to have a particular net worth. Investors can check an SEC database to determine whether an ICO is registered. If it’s not a securities offering at all, investors should be aware that the ICO may not be compliant with crowdfunding regulations or securities laws. Finally, if the ICO is a securities offering, then the persons offering it are required to be properly licensed under state and federal securities laws, and investors are advised to research their background on FINRA’s BrokerCheck system. In a broader sense, FINRA also advises that you research what the offering company does and what it intends to do with the funds raised in the ICO. Does it already have the final product it intends the sell? Has it rolled out the platform it’s building? In other words, investors are advised to conduct due diligence on the product before they invest.

Investors should also take care to read an ICO’s terms and conditions as well as any associated materials published by the issuer, such as white papers or business plans. Does your purchase give you any rights, such as an ownership stake or voting influence? Will you be able to sell your coins on a secondary market? Be sure to know your rights—and risks—before you invest, as you may not be able to get your money back later. Related to this is figuring out if and how you can get your get your money back, be it via a refund from the issuer or on a secondary market. If the cryptocurrency is a security, then the secondary market must likely be registered as a securities exchange, or otherwise qualify for an exemption. Finally, cryptocurrencies are new technologies which are uniquely vulnerable cybersecurity threats like malware, hacking and other sorts of fraud. Before you participate in an ICO, investigate what security measures the issuer is employing to protect its platform, products and currencies.

Finally, investors should keep an eye out for the red flags typical of most classes of investment fraud. Salespeople who guarantee returns, who pressure investors to act quickly, or who represent their products as completely without risk should generally raise eyebrows. Qualified, respectable investment professionals generally have the ability to explain in clear, simple, direct terms what the investment is and what its risks are. ICO issuers in particularly should be able to explain how investors can recoup their funds if the coins suffers a cybersecurity incident; investors might also inquire as to third parties who participate in the transaction, such as payment processing companies or currency exchanges, whether they are bound by any regulations, and what security measures they have in place. As with any investment, the key thing is knowing as much as you can before you invest.