While both founders are socially motivated, their inspiration for establishing Novelform was a AUD 32 million prize being offered by the World Health Organisation to anyone who comes up with a tangible solution to combat the deadly Bola-E virus.

They commenced operations with $2.5 million in seed capital from an angel investor who, because of the founders virtuous intent, had no expectation her capital would be returned unless new investors subsequently came on board.

The founders realised they needed to act quickly if they stood any chance of winning the prize. After a year of tireless effort, they had made excellent progress on a novel anti-viral solution but were now at a crossroad because the companys high cash burn rate meant they were one month from exhausting the last of their seed capital.

The first option is to submit their idea to the WHO immediately. First mover advantage says there is a small chance (say p1) they would take home the prize, which would help fund their ongoing work.

The second option is to accept $4.5 million in Series A funding from a boutique venture capital firm in return for a 50% share of any winnings. If they accepted the Series A funding, there is an equally likely chance that the drug will be improved as not improved. If the drug is improved the probability of winning the prize rises to p2, which the venture capital believed would be double p1, whereas the chance of taking home the prize remains at p1 if the enhancements are not successful. Seed capital is repaid directly from the Series A investment and all the excess Series A funds would be consumed trying to improve the solution.

For what value of p2 would the founders be indifferent to submitting immediately and accepting the Series A funding? (5 marks)