Shares in the peer-to-peer lender Funding Circle have fallen by as much as a quarter on its first full-day of trading on the London Stock Exchange, dealing a blow to the City’s aspirations to become a financial technology hub.

The shares fell 24% from the float price of 440p to a low of 334.5p on Wednesday before recovering slightly to end the day at 365p.

Analysts said Funding Circle, which collects a pool of funds from individuals and companies that it lends out to small businesses, was overvalued and questioned its claim to be a disruptive force in business lending.

The flotation valued the company at £1.5bn but by the end of Wednesday its market valued had fallen to £1.25bn.

The collapse wiped millions from the paper fortunes of the company’s three founders, who owned 17% of the firm. Samir Desai, James Meekings and Andrew Mullinger, all aged 35, sold a quarter of their combined holdings in the initial public offering (IPO).

The founders had originally hoped their collective stakes would be worth £280m, but by the end of Wednesday they were worth £213m. Russ Mould, an investment director at AJ Bell, said the eight-year-old company was priced too high.

The collapse in Funding Circle’s shares came on the same day Aston Martin’s IPO disappointed investors with a 5% decline. A banker familiar with both deals, who did not want to be named, said: “This is brutal. The IPO market stinks for growth stocks which do not have an earnings track record.”

Since it was founded in 2010, Funding Circle has lent more than £5bn to 50,000 small businesses, with funds collected from more than 80,000 investors.