Source Code Capital portfolio company KE Holdings successfully went public, becoming China's "first listed residential services platform."

On August 13, 2020, local time, KE Holdings (hereinafter referred to as "KE Holdings"), a portfolio company of Source Code Capital, listed on the New York Stock Exchange under the ticker NYSE:BEKE, becoming China's first "residential service platform" to go public. The IPO was priced at $20 per ADS, with 106 million ADSs issued, raising $2.12 billion.

By 2019 GTV, KE Holdings had become China's largest real estate transaction and service platform, as well as the country's second-largest commercial platform after Alibaba. Its three core businesses — existing home transactions, new home transactions, and emerging services — are dedicated to providing comprehensive, reliable residential services for 300 million households.

From Source Code Capital's perspective, KE Holdings exemplifies the S2B2C business model. Source Code has long been bullish on this model, investing since KE Holdings' Series B and continuing to increase its stake through Series C, Series D, and subsequent rounds, growing alongside the company throughout its journey.

Yi Cao, Founding Partner of Source Code Capital, stated: "In Source Code Capital's 'Three Horizontals, Nine Verticals' investment map, within the 'Internet + Housing' track of basic necessities, KE Holdings has become the largest company in this sector. Beyond KE Holdings, Source Code Capital has also invested in leading companies in the broader residential space such as Ziroom, Julive, HuiZhaoFang, and Cloud Whale. Our heavy bet on the residential sector reflects our investment thesis — for traditional Chinese values, this carries the aspiration for 'home,' 'family,' and a beautiful family life, which is deeply rooted in Chinese culture. The pandemic has made people more willing to invest in 'living well.' We firmly believe that in this domain, driven by forces like 'Internet +' and 'Intelligence +,' leading entrepreneurial companies like KE Holdings will continue to emerge, creating lasting, real value for the betterment of Chinese people's lives."

Long-term conviction in the KE Holdings model

In the "Letter to Shareholders" within KE Holdings' prospectus, Zuo Hui, Founder and Chairman of KE Holdings, stated that the company divides the entire residential real estate industry chain into four domains: manufacturing, transaction, living, and service support represented by finance. Through in-depth offline agent services and online data that builds consumer understanding, the company believes it can create entirely new value across the entire industry chain.

2017 Source Code Capital Annual Meeting — Zuo Hui, Founder and Chairman of KE Holdings

China's real estate transaction service market is vast, yet due to weak infrastructure, the experience and efficiency for both practitioners and consumers have remained difficult to improve. To address these pain points, KE Holdings built ACN (Agent Cooperation Network), redefining relationships between service providers. Serving as the underlying operating system of the KE Holdings platform, ACN connects different brands and agents, enabling efficient collaboration and shared success among service providers, thereby delivering higher-quality, more convenient services to clients.

At the 2018 Source Code Capital annual meeting, Zuo Hui noted that the digitalization of the real estate industry represents a crucial future trend. "In my view, real estate is one of the last, or among the final few, industries in China still struggling to move online. The reason it's so difficult is that the entire chain is excessively long," he said.

Zuo Hui continued: "We see the core issue in complex delivery businesses as the coordination of multiple roles — how platforms, Bs, and Cs can create more valuable synergies, and how data can be manifested online. These are the fundamental changes we hope to see. Such changes are already occurring in real estate transactions, while in home renovation and furnishing they're just beginning. There will be substantial directional shifts ahead."

2018 Source Code Capital Annual Meeting — Zuo Hui, Founder and Chairman of KE Holdings

KE Holdings' business model can be summarized as "two networks." Through the digitalization and standardization of data, transaction processes, and service quality, the company has built a "data and technology-driven online operations network" that helps consumers make more precise decisions, facilitates reciprocal collaboration among platform service providers, and improves industry efficiency. Offline, prospectus data shows the KE Holdings platform operates in 103 cities nationwide, connecting over 456,000 agents and 42,000 brokerage stores across 265 new brokerage brands — forming a "community-centered offline store network."

The "online network" dramatically enhances the efficiency and quality of offline operations, while the "offline network" generates more interactions and connections between property owners, clients, and KE Holdings, accumulating behavioral data. The two networks reinforce each other, creating a positive ecological cycle. KE Holdings calls this approach to transforming traditional service industries "Agent+Engineer," or "A+E" — where E transforms data into tools that continuously empower A to deliver superior service to consumers.

Meanwhile, through years of exploration, KE Holdings has built ACN, redefining relationships between service providers and unleashing tremendous "network effects." As its existing home transaction foundation continues to solidify, KE Holdings can layer on additional service categories, fully leveraging "platform effects." The "dual networks, dual engines" together drive KE Holdings' growth flywheel.

This is precisely why Source Code Capital is bullish on KE Holdings' S2B2C model. Under this investment thesis, Source Code Capital has also backed star companies with similar models such as Ziroom, Baibu, Xiaoyaoyao, Yunquna, and Julive — each leveraging this model's advantages across different sectors to profoundly transform and impact traditional industries.

Positioning in the digitization leaders across basic necessities

Beyond model advantages, broad demand forms an important foundation. Source Code Capital believes that amid waves of digitalization, online migration, and intelligentization, China will inevitably give rise to a cohort of platform companies valued in the hundreds of billions of dollars in domains closely tied to daily life — food, clothing, housing, transportation, and digital content. These companies will become foundational pillars of Chinese people's lives.

In dining, Meituan emerged from the early "thousand-group-buy war" with food delivery as its core business, gradually expanding into a giant of local lifestyle services. As the undisputed leader in food delivery, Meituan Waimai currently processes over 40 million orders daily, maintaining robust growth.

In transportation, new EV forces led by Li Auto are accelerating a technological revolution in mobility. Combining rapid internet and technology iteration, Li Auto leverages the electrification, intelligentization, and connectivity trends in the auto industry, redefining the concept of "car and home" with an extreme product philosophy that has won market trust and leading sales.

In digital content, ByteDance started with information distribution and algorithmic recommendation, incubating numerous quality internet products including Toutiao, Douyin, TikTok, and Lark. With highly efficient internal organizational management and a globally-oriented internationalization strategy, it is becoming a world-class enterprise beloved and respected by internet users worldwide.

After years of companionship and growth, Source Code Capital portfolio companies including Meituan, ByteDance, KE Holdings, and Li Auto have become leaders in their respective industries. Meituan's market cap has repeatedly hit new highs this year, while Li Auto and KE Holdings have successfully listed on U.S. markets. This KE Holdings IPO signifies that under the "Three Horizontals, Nine Verticals" investment framework, Source Code Capital's early positioning in the residential sector has entered a mature development phase. Source Code Capital hopes that through more quality innovative enterprises in food, clothing, housing, transportation, and digital content, investing in sector leaders can bring more quality supply at lower cost and higher efficiency, continuously fulfilling people's aspirations for a better life.

The ever-advancing entrepreneurial spirit

Lianjia was founded in 2001, engaging in second-hand home transactions, new home transactions, leasing, and renovation services. KE Holdings officially launched in April 2018. The decisive transformation from traditional brokerage model to digital platform — challenging oneself — owes much to KE Holdings' management team's conviction in "long-termism" and commitment to "doing the hard but right thing." This spirit of self-transcendence represents the most quintessential entrepreneurial spirit.

At the 2019 Source Code Capital annual meeting, Peng Yongdong, Co-founder and CEO of KE Holdings, also noted: "Industrial internet involves particularly many roles, especially long timelines, and especially cumbersome processes — the same service process lacks SOPs. Many organizations are driven by KPI targets and may not see value through time; this is what makes it hard."

2019 Source Code Capital Annual Meeting — Peng Yongdong, Co-founder and CEO of KE Holdings

Peng Yongdong said: "Industrial internet is a business of excellent supply. There are only two fundamental supply-demand models in any industry: one where supply and demand are independent and separate; another where they are integrated. Our core is merging these two fundamental models into three relationship groups: first, the supply-demand between buyers and sellers — a supply-demand separated business model; second, the supply-demand between consumers and service providers, and between service providers and agents — this is service supply-demand, where value is exchanged through service, again a supply-demand separated model; third, unique to our industry, the relationship between agents themselves is a supply-demand integrated model, where each agent is both supplier and demander to other agents, creating very strong network effects among agents. This model represents the true essence of the industry. For instance, when one agent places their property listing on a shared platform, others can consume this information and even generate cooperation based on this listing — this is the cooperation network, and the cooperation network is the essence of the industry."

For KE Holdings, there are only two criteria for determining what is right: one, being good to consumers; two, helping service providers be good to consumers. Strategy is doing the hard but right things. Hard things require longer vision, and even more, steady, down-to-earth execution.

In his "Letter to Shareholders" before this IPO, Zuo Hui stated that adhering to long-termism values continuously drives organizational growth at KE Holdings — KE Holdings will make tremendous efforts to fulfill its promises to consumers, continuously exploring new directions that are "dirty and tiring" but offer enormous opportunity upon success.

The management team led by Zuo Hui averages over ten years of tenure at the company. While still in an industry-leading position, they recognized the immense strategic opportunities ahead, resolutely setting aside personal status, and with absolutely efficient execution, fully committed to a major model transformation and upgrade — starting from zero. This is the most powerful embodiment of entrepreneurial spirit.

The shell is home, the pearl in Chinese hearts

In the simple Chinese conception of happiness, a house is home, and home is the starting point of all happiness. The happy life that every family pursues is like the pearl that the shell carefully nurtures and protects.

As China's residential service market supply-demand relationship becomes more balanced, real estate brokerage services will generate tremendous market opportunities. The industry's rapid development will give KE Holdings broad room for growth, while also helping more Chinese families find their starting point of happiness.

Once again, congratulations to KE Holdings — this IPO marks a new starting line on its pursuit of long-term value. And blessings to the Source Code community and all entrepreneurs: Source Code Capital will stand with you, embracing the entrepreneurial spirit, "doing the hard but right things," and together creating lasting, real value.

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