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Why have ASX tech founders been unloading shares?

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ASX tech shares like Afterpay Ltd (ASX: APT), Xero Limited (ASX: XRO) and Ltd (ASX: KGN) have been the undisputed champions of the S&P/ASX 200 Index (ASX: XJO) over the past 6 or so months.

In a market battered and bruised by the share market crash we saw in March, it was ASX tech shares leading the recovery. Since 23 March, the Afterpay share price has appreciated almost 800% on today’s prices. Xero shares are up 66% and Kogan shares by more than 400%.

This mirrors a trend we have seen over in the United States as well. US tech shares have also been the stars of the American market recovery. Shares like Apple Inc (NASDAQ: AAPL) and Inc. (NASDAQ: AMZN) are up around 100% and 65% respectively since 23 March. And electric car maker Tesla Inc (NASDAQ: TSLA) raised some eyebrows when it shot up nearly 600% between 18 March and 31 August.

ASX tech share sell-off

But according to reporting from Business Insider, many founder/owners of these ASX tech companies have been using this extraordinary rally to offload their own shares.

Business Insider claims that $750 million worth of insider selling has occurred within just 5 ASX tech shares in 2020 so far.

This insider selling was lead by the co-founders of Afterpay – Nick Molnar and Anthony Eisen. Between the two of them, $250 million worth of Afterpay shares were reportedly unloaded in July this year.

This was echoed over at Xero, with founder Rod Drury offloading $198 million worth of Xero shares earlier this month.

Kogan founders Ruslan Kogan and David Shafer have also cashed in, reportedly selling a combined $157.6 million worth of Kogan shares in August.

Also cashing in has been WiseTech Global Ltd (ASX: WTC) founder Richard White, who has sold more than $65 million worth of his company’s stock since June.

Finally, Business Insider reports that management at the cloud company Whispir Ltd (ASX: WSP) have been selling out of their shares as well, with $77 million worth of sales from “major investors” executed since the company’s shares were released from a 1-year post-IPO escrow.

What does the heavy insider selling tell us?

Well, I’m never too worried about the odd dash of insider selling, particularly if the share price in question has been exploding higher. Remember, the company’s founders and managers are investors too, that’s why they are running companies. And any good investor understands the dangers of having too many eggs in one basket. If I was an ASX tech billionaire sitting on an asset base that consisted of 90% Afterpay shares, dang right I would want to diversify. And if my company’s share price had risen by 800% in just a few months, I think I would be looking to cash in as well.

However, I would be concerned if say a founder was obviously selling off the vast bulk of their shareholdings. That would imply the founder is protecting his or her wealth by selling out of their own company – not a good sign. That being said, I don’t think any of these moves described above fit these criteria. So keep things in some perspective when you see insider selling. Most of the time, those sellers are just being prudent investors.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, Tesla, and Whispir Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ltd and Xero and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. The Motley Fool Australia has recommended Amazon, Apple, ltd, and Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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