NEW YORK -- Scott Sipprelle, once a big-time investment banker with

Morgan Stanley

, has learned at least one lesson in the two years since he set up his own firm,

Midtown Research Group

: Research doesn't sell.

This realization is of more than passing interest to students of the brokerage world who are trying to understand why the Chinese Wall has ceased to separate investment bankers from their research analysts. In other words, Wall Street research essentially is a prop for banking, the latter being far more remunerative than the former.

Still, the knowledge Sipprelle originally brought to his firm -- an unusually detailed understanding of the initial public offering process -- should be of great interest to investors in IPOs.

Some background is in order. In a career that spanned 13 years at Morgan Stanley, Sipprelle rose to head of the U.S. equity capital markets division. He participated in blockbuster IPOs that included

Netscape Communications

,

Lucent Technologies

(LU)

and

Gucci Group

(GUC)

. But when the deal flow became a function of quantity over quality, Sipprelle says, he decided to move on.

"I was the manager of a very large, very efficient assembly line," he says of the Morgan Stanley group that churned out as many as 10 deals per week.

And so together with research analyst Neil Barsky, Sipprelle set up Midtown Research as an investment boutique that would give institutional clients the straight dope on coming IPOs. They quickly signed up 40 institutions to take their research. But Sipprelle says the team found that in the age of momentum investing, the institutions weren't all that interested in research. Besides, Midtown figured it was better to act on its own ideas, so it focused instead on the fund it'd set up at the same time as the research shop. Research costs money to produce; investments gains multiply into large numbers.

Most revealing are Sipprelle's observations about the IPO roadshow. Fund managers who attend scores of meetings don't have time to absorb each story. Sometimes, he notes acerbically, all they carry away is an impression: That the room was crowded, say. "A good roadshow never has enough seats," he says -- dead seriously.

Now Midtown focuses on contrarian IPO plays. It researches newly public companies but doesn't necessarily buy in the beginning.

"The best way to buy new companies is to research them and then wait until you can buy them wholesale," he says. After all, companies that rose steadily over the years -- like

Cisco

(CSCO) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Home Depot

(HD) - Get Report

-- are the exceptions, not the rule.

"Even with

eBay

(EBAY) - Get Report

TST Recommends

, you had an opportunity," Sipprelle argues, noting that the online auction house traded below its first-day close (a split-adjusted 15 13/16) for nearly a month before taking off.

This patience may make Sipprelle sound downright quaint in this market. But his fund,

MRG Nucleus

, which looks only for underappreciated or undervalued assets, was up 52% last year, he says.

And this year? Even before March madness set in, Sipprelle was warning of the risks in the rapid rise of the

Nasdaq

. "We think the stock market is in the midst of a dangerous game of 'chicken' with tech stocks," the group told investors in its February report. "We will forgo some thrills, but plan to sleep soundly at night."

Think about this guy next time you're angry about being frozen out of a "hot" IPO.

Call It the Incubator Premium

Yellowave

, formerly a Los Angeles franchiser of hair salons (it'd be too difficult to make this stuff up), is sending emails to journalists to remind them that it's a technology company now. "Our future is as an incubator of high-tech companies, with initial investments in Israeli companies in wireless, telecommunications and fiber optics, as well as business-to-business and business-to-consumer e-commerce."

It's

incubator magic! Yellowave's stock closed up 7/8 Thursday at 16 7/8, up from less than 3 in January. Its president is Israeli entrepreneur Ron Oren, who has shed the original hair-salon business and is now making tech investments in his homeland. Oren purchased Yellowave in August specifically to get its "shell" status as a public company and says he'll announce one or more exciting acquisitions next week.

When an outfit goes public this way, there's the question of why -- if it has such a hot plan -- it could not tap into the still-generous capital markets with a conventional IPO. Sometimes these companies are winners: Shares of

Sensar

(SCII)

, the Israeli-owned shell that bought a technology company called

Net2Wireless

(and was profiled

here in January), are up about 40% since the beginning of the year.

On the other hand, don't forget

Zapata

(ZAP)

, the fishmeal company that caused a stir in the middle of 1998 -- and a huge, short-lived rise in its shares -- with its on-again/off-again Internet strategy. Zapata's shares bumped briefly over 20 at the time; they closed Thursday at 5 1/2.

One other "Presto! We're-An-Incubator" story hasn't been working out so well.

Ventro's

(VNTR) - Get Report

shares rose from 120 to 243 1/2 when it ceased to be life-sciences-oriented

Chemdex

and instead became a

"horizontal" B2B company. By Thursday, the shares had returned to 140 1/8.

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.