I assume VC per capita is a used as a metric because it's a useful way of assessing how much economic value the whole country can extract from the startup scene, in the same way that GDP per capita is a more useful measurement than total GDP at assessing a country's quality of life. Israel may have a similar concentration of startup companies in a city (like Tel-Aviv) and the math would then work out to a higher per capita VC investment than London.
It's true that most of them are not in Tel Aviv, but they are far from being spread out - they are almost entirely within the a small section that includes Tel Aviv, Ramat Gan, Herzeliya, Natanya and the south end of Haifa - I guess that would cover 90% of Israeli startups (as well as established high tech companies), and about 15% of the Israeli population.
