With increased technological changes, global competition and a changing business environment, innovation and entrepreneurship are becoming vital issues in technology-based Small and Medium-sized Enterprises (SMEs). On the other hand, technology based SMEs are playing a key role in the business environments in all developed and emerging economies. However, the failure rates of such small businesses in almost all economies are very high. Recently, the role of innovation capacity in developing new products and services for SMEs operating in the high-tech sector became of interest to academics and practitioners. Also developing new products and services became one of the critical success factors for SMEs, which in turn increases entrepreneurial firm performance. The main objective of this research is to investigate the moderating role of innovation capacity on the relationship between product and market development strategy and entrepreneurial firm performance in high-tech sector SMEs in the UK. The conceptual framework of this study has been developed based on synthesizing the existing literature in the subject field. It links the product and market development strategy perused by technology based firms in the biotechnology, pharmaceutical and software development industries with firms’ innovation capacity and entrepreneurial performance. This research benefits from quantitative methodology. A quantitative study using a survey was the chosen method of research and was felt justified due to the number of SMEs and their widespread geographical distribution across the UK. The primary data have been collected via questionnaires. To analyze the questionnaires, a five point Likert-type scale was used to evaluate respondent opinion. The main conceptual framework developed and tested empirically in this research proposes that small and medium enterprises could improve and enhance their entrepreneurial performance if they pursue product development rather than market development strategy. The changing nature of the high-tech industry requires innovative and strategic thinking approaches in firms when it comes to making strategic decisions. Innovation is a core element in technology-based SMEs success. It is concluded that high performance firms act aggressively in developing new products in preference to entering into new markets. It has also been found that successful firms enhance innovation capacity to create the foundation for new product design and development